Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 6, Problem 6DQ
To determine
Inelasticity of
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Q2
Suppose the price elasticity of demand for the market of mobile phones is 0.90.
If all mobile-phone companies simultaneously increased their prices, will total revenue in the industry increase or decrease?
If a single mobile-phone company increased its price, would you expect the company’s total revenue to increase or decrease? Explain.
Suppose that the price in the market is initially $10 and the quantity demanded is 100 units. If the price in this market increases by 10%, what will be the percentage change in the quantity demanded?
Q2
Suppose the price elasticity of demand for the market of mobile phones is 0.90.
If all mobile-phone companies simultaneously increased their prices, will total revenue in the industry increase or decrease?
If a single mobile-phone company increased its price, would you expect the company’s total revenue to increase or decrease? Explain.
Suppose that the price in the market is initially $10 and the quantity demanded is 100 units. If the price in this market increases by 10%, what will be the percentage change in the quantity demanded?
Answer:-
Q3
If you have SAR 50,000 to start a new business, you can earn 10 percent interest on money in a bank account. Your business expenses are SAR 22,000 per year on rent, SAR 18,000 per year on supplies, and SAR 5,000 per year on part time help. As for your personal expenses, your apartment costs you SAR 12,000 per year and your personal bills are an extra SAR 6,000 per year. What is your opportunity cost of running the business?
Q4. a) Give your own example (think about your own tastes&preferences, i.e., you cannot use
examples from the textbook) of a product that your demand is elastic. Assume that the price of this
product rises. What happens to total revenue of the producer? Explain why.
Product you choose:
TR declines or increases:
Explanation:
b) Give your own example (think about your own tastes&preferences, i.e., you cannot use examples
from the textbook) of a product that your demand is inelastic. Assume that the price of this product
rises. What happens to total revenue of the producer? Explain why.
Product you choose
TR declines or increases:
Explanation:
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Similar questions
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- ONLY ANSWER QUESTION #2 1. Online the timing and tailoring of prices to specific models of products is the key to successful pricing in online markets. And “Thanks to the ready availability of data in online markets, a pricing manager can easily approximate the elasticity of demands for the different products it sells online.”Assuming a 10 percent decrease in price increases sales by 28 percent, calculate the price elasticity of demand? If the wholesale price of the online product is $50 and sells at a price comparison site that charges $.50 per click and boasts a conversion rate of 5 percent (an average of 20 clicks are needed to generate a sale). What price should you charge for the product? What is the optimal markup on cost? 2. The authors assert that price sensitivity is affected by (1) product life cycles, and (2) numbers of competitors. In fact, “when the number of competing sellers doubles, a firm’s elasticity of demand is expected to double (and you should be able to verify…arrow_forwardtranscript K If a 27 percent increase in the price of Cap'n Crunch cereal causes a 19 percent reduction in the number of boxes of cereal demanded, what is the price elasticity of demand for Cap'n Crunch cereal? 70. (Enter a numeric response using a real number rounded to two decimal places.) The demand for Cap'n Crunch is inelastic As a result of the price increase, what will happen to Total Revenue for Cap'n Crunch? A. TR will increase. B. TR will decrease. OC. TR will remain the samearrow_forwardRefer to the graph below. Use the information on the graph to determine the validity of the statements below... * a)According to the price elasticity formula, the proportional change in price between points a and b equals 20% b)According to the price elasticity formula, the value of elasticity between points a and b equals 0.25 c)The slope of this demand curve is ‐2 d)All of the above statements are correctarrow_forward
- Discuss how to establish in terms of elasticity of demand, whether the products that your business is producing are complement goods or substitute goods in consumption.arrow_forwardMy question is, First of all, from the data shown in the table about the demand for graphing calculators, how do I calculate the price elasticity of demand from point A to point B, point C to point D, and point F to point G. Secondly, how do I classify the elasticity at each point as elastic, inelastic or unit elastic. Points P Q A 60 3,000 B 70 2,800 C 80 2,600 D 90 2,400 E 100 2,200 F 110 2,000 G 120 1,800 H 130 1,600arrow_forwardFor the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 4 percent. If, as a result of this price increase, the volume of all cereal sold by Big G dropped by 5 percent, what can you infer about the own price elasticity of demand for Big G cereal? Can you predict whether revenues on sales of its Lucky Charms brand increased or decreased? Explain.arrow_forward
- The demand function for a new espresso drink at a popular coffee shop is given by 1/2 x = 0.4(81 – p )"2 where x is the quantity of drinks demanded every hour and p is the unit price in dollars per drink. (a) Evaluate the price elasticity of demand at 8 dollars per drink. Elasticity: (b) Complete the sentence: Because demand is ? the unit price should be ? the current $8 per drink in order to increase revenue. (c) At what price is the demand of unitary elasticity? dollarsarrow_forward13) The price elasticity of demand for bottled water in Yorkshire is -2, while the price elasticity of demand for bottled water in London is -0.8. In other words, demand in Yorkshire is ________ and demand in London is ________. A) elastic, unitarily elastic B) elastic, inelastic C) inelastic, elastic D) highly inelastic, slightly inelasticarrow_forwardUse the graph for Yolanda's Frozen Yogurt Stand to answer the questions that follow. Use the midpoint formula to calculate the price elasticity of demand for D, between point A and point C and the price elasticity of demand for D₂ between point A and point B. Price elasticity of demand for D₁ = (Enter your response rounded to two decimal places. Be sure to include the minus sign.) CXIIS Price (dollars per cone) 4.00- 3.75- 3.50- 3.25- 3.00- 2.75-P₁ 2.50+ 2.25- 2.00- 1.75-P2 1.50- 1.25- 1.00- 0.75 0.50 0.25 0.00+ 0.0 10.0 A B D₂ C 25 :35 20.0 30.0 40.0 Quantity (cones per day) D₁ O 0 o O OFarrow_forward
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