For consumers with an income around $50,000 a year, you can expect the price elasticity of demand to be more elastic for a $20,000 ski boat than for a $1 roll of toilet paper. True
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good. Price elasticity of demand is the ratio of the percentage change in quantity demanded to the percentage change in price.
The greater the proportion an expense is to income, the greater the elasticity. For example, assume the price of the ski boat increases to $50,000, more likely than not the person that earns an income of $50,000 would not be able to purchase the ski boat. Thus, it would have a high elasticity of demand.
On the other hand, the price of a roll of toilet paper cannot exceed $10. Thus, it would have an inelastic demand.
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