Demand analysis for a consumer product reveals that own price elasticity is -0.37, and income elasticity is 1.2. Provide an economic description of the product

Question

BlackTom AI · Accepted Answer

To analyze the demand data, we look at two key elasticities:
- Own price elasticity of -0.37 means demand changes by 0.37% for every 1% change in price. Since the absolute value is less than 1, demand is inelastic with respect to price; buyers are not highly responsive to price changes.
- Income elasticity of 1.2 indicates that demand rises as income rises and, crucially, the positive sign and magnitude (>1) suggest the good behaves like a luxury good: demand grows more than proportionally with income.

Now evaluate each option:
Option 1: This is a luxury product which is not very sensitive to change in prices.
- This correctly combines two features: the positive income elasticity (1.2) pointing to luxury status, and the inelastic price sensitivity (|elasticity| = 0.37 < 1) indicating the product is not very sensitive to price changes. This aligns with the given data.
Option 2: This is an inferior product and not sensitive to change in prices.
- An inferior product would have a negative income elasticity, meaning demand decreases as income rises. Here income elasticity is positive (1.2), so this statement is incorrect. Also it could be price-insensitive, but the inferior claim is inconsistent with the data.
Option 3: This product is very sensitive to changes in competitors' prices.
- The provided elasticities describe own price responsiveness and income responsiveness, not cross-price (competitors’ price) effects. Saying it is very sensitive to competitors’ prices would require a cross-price elasticity figure, which we don’t have. This option misconstrues the given information.
Option 4: This is a normal product which is not very sensitive to change in prices.
- While the product is indeed a normal good (positive income elasticity), the magnitude 1.2 indicates it is a luxury good, not just a normal one. The statement understates the income effect by not capturing the luxury aspect, making it incomplete or inaccurate relative to the data.

In summary, the combination of a positive, >1 income elasticity and a low, inelastic own price elasticity points to a luxury good that does not respond strongly to price changes. The remaining options either misstate income effects, misinterpret price sensitivity, or ignore the luxury characteristic.

Demand analysis for a consumer product reveals that own price elasticity is -0.37, and income elasticity is 1.2. Provide an economic description of the product

查看解析

登录即可查看完整答案

类似问题

When incomes drop, what happens to the demand for an elastic product?

A monopolistically competitive firm’s demand curve will be highly elastic if which of the following exists?

A market with a high demand elasticity offers to consumers ___________ relative to a market with low demand elasticity

15 By providing better service, a firm is trying to: A. Make demand less elastic B. Make demand more elastic C. Make supply less elastic D. Make supply more elastic

An owner whose property is in a strong market position, where fewer services can be offered to tenants for the same dollar of rental income and where the owner will not lose tenants if the property is under-maintained, is said to participate in a market that has:

A relatively inelastic demand is associated with _______________

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单