Gm545 Quiz 1

To reposition its water as a premium product, Healthy Spring will require an increase in its advertising and promotion budget of $900 daily. What is the maximum sales loss that Healthy Spring could tolerate before a 20% price increase would fail to increase its net profit? (That is, what is the breakeven sales change, including the incremental fixed cost of the advertising campaign?)

The importance of price elasticity and total revenue are related. The owner can use the total revenue test that can determine whether demand is elastic or inelastic. The test compares the change in total revenue corresponding to the changing price. The total revenue test can assist a company to maximize revenue. If a good is elastic, the owner will not want to change prices because even a small change would decrease demand and vice-versa. By using the total revenue test the owner can avoid pricing mistakes that may be costly. Along the demand curve it can be seen that raising the price reduces the quantity demand, point A.

Similarly as price elasticity of demand, price elasticity of supply can be also an extremely useful piece of information for business firms in deciding how much to produce their products. To see why a business might care about the price elasticity of supply, let’s consider how an increase in price might affect a business’s total revenue. Since price and quantity have a positive relationship in price elasticity of supply, a higher price will generally mean producing at a higher quantity, so the total revenue will increase.

When elasticity of demand is measured more than one demand is classified as being elastic. At this rate the percentage change in price is less than the percentage change in quantity demanded. Therefore, E d = ∆Qd is greater/ ∆Pd is less. The coefficient in an elastic range is more than one. Elastic demand is unlike inelastic demand because it is greatly impacted by price changing. Even a small price increase can

1. When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is ( )

13. If price elasticity of demand = -1.5 and price decreases by 20 percent, then

2. When the percentage change in the quantity demanded equals the percentage change in price, then demand is

1. College logo t-shirts priced at $15 sell at a rate of 25 per week, but when the bookstore marks them down to $10 it finds that it can sell 50 t-shirts per week. What is the price elasticity of demand for the logo t-shirts? Is the demand elastic or inelastic?

cause a leftward shift of the new auto demand curve because they are a normal good. c.

Elasticity of demand is measured as the percentage change in quantity demand divided by the percentage change in price .

Because the paint is at 2.56, this is considered to be elastic demand. This means that the demand for the good changes at a faster rate than the price change of the good. Sales fall off steeply when the price increases, but they jump sharply when the price declines.

II. When price falls from 4 pounds to 3 pounds the demand for travel increases to 80,000 units- At the original market price of 4 pounds the demand for travel was 60,000 units generating revenue of 240,000 pounds. When the price is reduced to 3 pounds the resulting demand is 80,000 units and this also generates income of 240,000 pounds. When market price changes and the resulting revenue remains the same it can be said that price elasticity of demand is unitary in

When price elasticity of demand is elastic, the coefficient will be greater than one. When a percent price change occurs quantity demanded responds strongly there will be a large change in quantities consumers purchase. There is price sensitive in this scenario. If price elasticity of demanded is inelastic the coefficient will be less than one. When a percent price change occurs quantity demanded does not respond strongly then there is a slight change in quantities consumers will purchase. There a weak price sensitive in this scenario. Lastly, if price elasticity of demanded is unit elastic the coefficient will be equal to one. Whenever there is a percent change in price there is an equally matched percent change in quantity demanded. This scenario is rare.

If the demand for the good or services of the company is elastic then the change in quantity demanded would be greater than a change in price. Let’s say the 10 percent decrease in price will cause increase in demand for 20 percent. The effect of this changes is that customers buying more products of this company. They are buying it for lower price but the price decrease outweigh by increasing quantity of the products or services. In this case the company benefits from these changes by raising profits. On the other hand, if company would raise the prices for the product the quantity will decrease so does the profit.

Recall that the elasticity of demand, which measures the responsiveness of demand to price, is given by