Studies have shown that the price elasticity of demand for necessities, such as food, are higher in developing countries and lower in developed countries. What is the reason for this difference in elasticity?

What will be an ideal response?


One of the determinants of elasticity is the proportion of income spent on a good or service. The higher the proportion of income spent on a good, the larger the price elasticity of demand for that good. People in developing countries have low incomes and therefore spend a large part of it on food. For example, in Tanzania, 62 percent of income is spent on food. On the other hand, in United States, only 12 percent of income is spent on food. The price elasticity of demand for food, therefore, will be larger in developing countries as compared to developed countries.

Economics

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