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, we would expect the coefficient of price elasticity of demand to be:(A) larger for hamburger than for filet mignon.(B) larger for filet mignon than for hamburger.(C) approximately the same for both hamburger and filet mignon.(D) none of the above because different determinants would have opposing effects on the two estimates.

Answer 1

Answer:

The correct answer is B

Explanation:

Price elasticity of the demand evaluates the demand responsiveness after the change or variation in the product own price.

The formula for computing the coefficient of price elasticity, is the factors which affect the elasticity and also elasticity is vital for business when deciding the prices.

So, Filet mignon(F) sells for $20 per pound when compared to that of hamburger (H) which sells the product for $2.30 per pound. F have the higher price as compare to the H, therefore, the coefficient of the price elasticity of demand in absolute value will be high or larger for F than that of H.