A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system.Therefore, you would expect the demand for:
A) a home entertainment system to be more price elastic.
B) a home entertainment system to be more price inelastic.
C) newspapers to be more price elastic.
D) both to be equally price elastic.

Question

Quizplus · Accepted Answer

When a good represents a smaller fraction of a consumer's budget, it generally means that they are less sensitive to changes in price for that good. This is because the impact of a change in price is relatively small compared to their overall budget. Therefore, the demand for a home entertainment system to be more price elastic, meaning the quantity demanded will be more responsive to changes in price.

A Newspaper Typically Consumes a Smaller Fraction of a Consumer's