Refer to the graph below. Only one of the statements below is entirely correct. Which one? * Price P, 20% P2 Q, Q. Quantity This demand curve is relatively elastic because the price increase is greater than the quantity decrease. This demand curve is relatively inelastic because the increase in price is proportionally larger than the decrease in quantity demanded. This demand curve is unitary elastic because the 20% increase in price leads to a 10% decrease in quantity demanded. This demand curve is perfectly elastic O because a change in price prompts a change in quantity demanded.

Refer to the graph below. Only one of the statements below is entirely correct. Which one? * Price P, 20% P2 Q, Q. Quantity This demand curve is relatively elastic because the price increase is greater than the quantity decrease. This demand curve is relatively inelastic because the increase in price is proportionally larger than the decrease in quantity demanded. This demand curve is unitary elastic because the 20% increase in price leads to a 10% decrease in quantity demanded. This demand curve is perfectly elastic O because a change in price prompts a change in quantity demanded.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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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?
Why is the supply curve with constant unitary elasticity a straight line?
Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?
Why is the demand curve with constant unitary elasticity concave?
Explain why using the midpoint formula for calculating the elasticity of demand gives the same result whether price increases or decreases, but using the initial price and quantity instead of the average does not.
(Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?
Plot the price and quantity data given in the demand schedule of exercise 1. Put price on the vertical axis and quantity on the horizontal axis. Indicate the price elasticity value at each quantity demanded. Explain why the elasticity value gets smaller as you move down the demand curve.
Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand will differ between necessities and luxuries.