Table 5-1
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
A)A is laundry detergent and B is Tide.
B)A is Diet Pepsi and B is soda.
C)A is food and B is a yacht.
D)A is toilet paper and B is candles.

Question

Table 5-1 
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
A)A is laundry detergent and B is Tide. 
B)A is Diet Pepsi and B is soda. 
C)A is food and B is a yacht. 
D)A is toilet paper and B is candles.

Quizplus · Accepted Answer

The elasticities given for product A and B are -2.5 and -1.5, respectively. Since the elasticity for A is larger in magnitude than that of B, A is more elastic than B. This suggests that A is a more generic product than B. Therefore, it is reasonable to assume that A is Diet Pepsi, a generic soda, and B is a specific brand of soda. Choice A cannot be correct, as laundry detergent and Tide are not examples of a generic product and a specific brand. Choice C is not consistent with the elasticities given, as a yacht is a luxury good with a very high price elasticity of demand, and thus it is not comparable to a food item with a low elasticity. Choice D is also not consistent with the elasticities given, as toilet paper is a necessary good with a low elasticity of demand, while candles are a luxury good with a high elasticity of demand.

Table 5-1 -Refer to Table 5-1. Which of the Following Is Consistent