Price Knowledge and Elasticity

Previous research indicates that consumers often exhibit surprisingly poor knowledge of product prices. The present study investigates whether price knowledge, as measured by reference price accuracy, is related to price-sensitivity as measured by the price-elasticity of demand. We hypothesize that consumers are most knowledgeable regarding the prices of goods for which demand is most price-elastic. Using a new data set containing a wide array of goods and services, we find significant correlations between price-elasticity and two measures of reference price accuracy. Additionally, price knowledge is found to be higher among teens and males than among older adults and females, respectively.