QUESTION 7 Consider a 15 percent increase in the price of a box of 50 of...

QUESTION 7 Consider a 15 percent increase in the price of a box of 50 of mailing envelopes and a 15 percent increase in the price of designer leather goods. In response to the price changes, which of the following is most likely to be true?

The percentage change in the quantity demanded for designer leather goods will be larger than the percentage change in the quantity demanded for a box of 50 of mailing envelopes.

The percentage change in the quantity demanded of designer leather goods will be approximately equal to the percentage change in the quantity demanded of a box of 50 mailing envelopes.

The percentage change in the quantity demanded for a box of 50 of mailing envelopes will be larger than the percentage change in the quantity demanded for designer leather goods.

The total revenue from designer leather goods will not change.

Expert Solution

Question 7

The price of a mailing envelopes is significantly much less than the price of a designer leather goods.

This means that share of expenditure on mailing envelopes in total expenditure by a typical consumer would be much less than the share of expenditure on leather goods in total expenditure.

The good that accounts for larger share in total expenditure generally have more elastic demand.

So, demand for leather goods will be more elastic relative to the demand for mailing envelope.

Given the price increase, quantity demanded of the good with more elastic demand changes in greater proportion than the quantity demanded of the good with less elastic demand.

Thus,

The percentage change in the quantity demanded for designer leather goods will be larger than the percentage change in the quantity demanded for a box of 50 of mailing envelopes.

Hence, the correct answer is the option (1).

Rahul Sunny answered 3 months ago

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