Chapter 46, Problem 4MCQ

To determine

The correct option for the highest price elasticity of demand.

Answer to Problem 4MCQ

Option e is correct.

Explanation of Solution

Explanation for the correct option:

e.

The highest price elasticity explains the change in demand if the price level is changed. Foreign travel prices are reduced and it can be affordable to all then demand for this will increase immensely. Therefore, option e is the correct answer.

Explanation for incorrect options:

a.

Eggs are the goods required for daily consumption even if prices are increased demand will least likely be affected. Therefore, option a is incorrect.

b.

Similar to eggs, beef has less price elasticity. Therefore, option b is incorrect.

c.

Housing comes under fixed investment whose demand always depends on the income level. Prices do not affect such demand much. Therefore, option c is incorrect.

d.

Gasoline is another good whose price elasticity will be high but as compared to foreign travel it is less. Therefore, option d is incorrect.

Economics Concept Introduction

Income effect: The income effect shows the increasing purchasing power of a consumer when there is a change in the price level.

Substitution effect: Substitution effect shows the ability to substitute inferior good with a normal good due to a change in the price level.