Asked by Blossom Child on May 26, 2024
Verified
Which of the following generalizations is not correct?
A) The larger an item is in one's budget, the greater the price elasticity of demand.
B) The price elasticity of demand is greater for necessities than it is for luxuries.
C) The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product.
D) The price elasticity of demand is greater the longer the time period under consideration.
Price Elasticity
A metric indicating the sensitivity of an item's demand or supply levels to variations in its cost.
Budget Item
An individual expense or source of revenue that is accounted for in a financial budget.
- Evaluate the variables that impact the price sensitivity of demand, such as the period of consideration, substitute goods availability, and the fraction of income devoted to a commodity.
- Determine the elasticity of demand for necessities versus luxuries.
Verified Answer
JC
Jordan CurtisMay 28, 2024
Final Answer :
B
Explanation :
The price elasticity of demand is typically greater for luxuries than for necessities. Necessities are items that consumers must buy regardless of price changes, making their demand less sensitive (inelastic) to price changes, whereas luxuries, which are non-essential, tend to have more elastic demand because consumers can more easily adjust their purchasing habits in response to price changes.
Learning Objectives
- Evaluate the variables that impact the price sensitivity of demand, such as the period of consideration, substitute goods availability, and the fraction of income devoted to a commodity.
- Determine the elasticity of demand for necessities versus luxuries.