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.
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A) always assess the highest possible tax rate. B) always assess the lowest possible tax rate. C) determine the highest possible tax rate and then back it down by exactly 4 percentage points. D) push tax rates up to the point where revenues peak, but raise the tax rate no farther.
The elasticity of demand for salt is: a. highly elastic
b. highly inelastic. c. equal to zero. d. infinitely elastic.
Which is a determinant of the demand for housing?
a. The price of lumber b. Changes in the expected future price of housing c. The price of housing d. Wages for electricians
Demand tends to be elastic at higher prices and inelastic at lower prices.
Answer the following statement true (T) or false (F)