The figure below shows the average share of total household expenses for a good and the inflation-adjusted price of the same good. The share of all expenses line is calculated as expenditures on this good (that is the price of this good multiplied by the quantity of this good purchased) divided by total household expenses. This line shows how expenditures on this good changes over time, holding total spending constant. The other line is the price of this good adjusted for inflation (i.e., the increase in the price level for all goods). The specific units are obscured on purpose. Use these data to characterize the price elasticity of demand. Explain using the definitions of price elasticity of demand and total expenditure. Notice that I am not asking you to calculate the price elasticity of demand. Use the data to talk about the size of price elasticity of demand in general terms. Is demand elastic or inelastic? Is the price elasticity of demand very large? Very small? Close to 1? Explain how you got your answer. Prices and Relative Expenditures, 1993-2013Share of All Expenses-Inflation-Adjusted Prices$0.00Percent1993199419951996199719981999200020012002200320042005200620072008200920102011Price20122013

In economics, income elasticity is a measure of how responsive the demand for a good or service is…

Answered: Prices and Relative Expenditures,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The figure below shows the average share of total household expenses for a good and the inflation-adjusted price of the same good. The share of all expenses line is calculated as expenditures on this good (that is the price of this good multiplied by the quantity of this good purchased) divided by total household expenses. This line shows how expenditures on this good changes over time, holding total spending constant. The other line is the price of this good adjusted for inflation (i.e., the increase in the price level for all goods). The specific units are obscured on purpose.

Use these data to characterize the price elasticity of demand. Explain using the definitions of price elasticity of demand and total expenditure. Notice that I am not asking you to calculate the price elasticity of demand. Use the data to talk about the size of price elasticity of demand in general terms. Is demand elastic or inelastic? Is the price elasticity of demand very large? Very small? Close to 1? Explain how you got your answer.