Most people, when asked, cannot name the price of a canister of table salt at the grocery store within a factor of 25 percent. Which elasticity argument explains why?
A) Table salt has many substitutes; demand is highly elastic.
B) Expenditures on table salt make up a tiny fraction of the average person's budget; demand is highly inelastic.
C) Most people make their salt consumption decisions in the short run.
D) People are loyal to their specific brands of salt.

Question

Quizplus · Accepted Answer

The fact that most people cannot name the price of a canister of table salt indicates that it is a product with a low price, and therefore, expenditures on salt make up a tiny fraction of the average person's budget. This means that the price of salt has little impact on the quantity demanded, and thus, demand for table salt is highly inelastic.

Most People, When Asked, Cannot Name the Price of a Canister