Assume an analyst has been hired to estimate the price elasticity of demand for

Question

Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound) and filet mignon (which sells for about $20 per pound), respectively. Considering the different determinants of the price elasticity of demand and assuming the consumers in both markets have approximately the same incomes, we would expect the coefficient of price elasticity of demand in absolute value to be:

1. larger for hamburger than for filet mignon.

2. larger for filet mignon than for hamburger.

3. approximately the same for both hamburger and filet mignon.

4. none of the above because different determinants would have opposing effects on the two estimates.

Explanation / Answer

Answer :

Correct option is B

Explanation : Filet mignon sells for about $20 per pound when compared to hamburger that sells for $2.30 per pound . Filet mignon having a higher price compared to hamburger , the coefficient of price elasticity of demand in absolute value will be larger for filet mignon than for hamburger.

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