Bayerische Motoren Werk (BMW)charges a Considerably Higher Price for Its

Bayerische Motoren Werk (BMW) charges a considerably higher price for its automobiles in the North American market than it does in its home market of Europe.Assuming that the goal of BMW's pricing policy is profit maximization, which of the following would be a plausible explanation for BMW's pricing policy?

A) The income elasticity of demand in North America must be greater than 1, making BMWs a luxury good in North America, and between 0 and 1 in Europe, making BMWs a normal good there.
B) The income elasticity of demand in North America must be between 0 and 1, making BMWs a normal good in North America, and less than 0 in Europe, making BMWs an inferior good there.
C) The price elasticity of demand in North America must be greater than 1, making the demand for BMWs price elastic in North America, and between 0 and 1 in Europe, making the demand for BMWs price inelastic there.
D) The income elasticity of demand in both North America and Europe is greater than 1, since BMWs are a luxury good, but per capita income in North America is much higher than in Europe.
E) The price elasticity of demand is greater than 1 in both North America and Europe, making BMWs price elastic, but it must be higher in Europe.

Correct Answer:

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