Question

After major hurricanes like Katrina, many ethical home repair and building supply businesses continue to charge pre-hurricane prices to their customers, even though due to the huge increase in demand they could charge much more. These firms probably recognize that______________.

Answer 1

Answer:

Demand for home repair and building supply is INCOME ELASTIC

Explanation:

One reason why many ethical home repair and building supply businesses continue to charge pre-hurricane prices to their customers, even though due to the huge increase in demand they could charge much more. These firms probably recognize that demand for home repair and building supply is INCOME ELASTIC.

Although there was no direct fall in income however the loss of property means a negative impact on already earned income. Hence charging higher prices because of higher demand will be a misunderstanding of the income elasticity of demand.