1.] A company has the demand equation, x = P,P-8p>8 (where p is in dollars, and x isin units).a) Find the point elasticity of demand when the price is $12.b) Using your answer from a), determine the percentage change in demand that will occur if the priceis decreased by 3% at the $12 level.c) Determine the prices for which the demand is elastic.

a) The point elasticity of demand when the price is $12 is -2.00.b) The percentage change in demand…

Answered: 1. ] A company has the demand equation,…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter20: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 7CQ

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The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?
The price elasticity of the demand for gasoline is -0.02. The price elasticity of demand for gasoline at Joe’s 66 station is -1.2. Explain what might account for the different elasticities.
What is the formula for line cross-price elasticity of demand?
Suppose you learned that the price elasticity of demand for wheat is 0.7 between the current price for wheat and a price 2 higher per bushel. Do you think that farmers collectively would try to reduce the supply of wheat and drive the price up 2 higher per bushel? Explain your answer. Assuming that they would try to reduce supply, what problems might they have in actually doing so?
The price elasticity of demand for personal computers is estimated to be 2.2. If the price of personal computers declines by 20 percent, what will be the expected percentage increase in the quantity of computers sold?
(Price Elasticity of Supply) Calculate the price elasticity of supply for each of the following combinations of price and quantity supplied. In each case, determine whether supply is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. a. Price falls from $2.25 to $1.75; quantity supplied falls from 600 units to 400 units. b. Price falls from $2.25 to $1.75; quantity supplied falls from 600 units to 500 units. c. Price falls from $2.25 to $1.75; quantity supplied remains at 600 units. d. Price increases from $1.75 to $2.25, quantity supplied increases from 466.67 units to 600 units.
What is the formula for the income elasticity of demand?
From the data in Table 5.5 about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.
Suppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your companys product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

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