Question

ABC corporation raises the price of its product by 21% and as a result, quantity sold falls from 350 units a week to 310. (Hint, the denominator has a % in it. So, you will need to be careful with what you do in the numerator. Do not cancel things that cannot be cancelled!)

7.1.

The elasticity of demand for their product is ______: ABC corporation raises the price of its product by 21% and as a result, quantity sold falls from 350 units a week to 310. (Hint, the denominator has a % in it. So, you will need to be careful with what you do in the numerator. Do not cancel things that cannot be cancelled!) 7.2.   The consumers of this product have a demand that is: ABC corporation raises the price of its product by 21% and as a result, quantity sold falls from 350 units a week to 310. (Hint, the denominator has a % in it. So, you will need to be careful with what you do in the numerator. Do not cancel things that cannot be cancelled!) 7.3.   In this case, revenues to the ABC corporation will decrease as a result of the price increase. Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.1.   The elasticity of demand for this product is ________. Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.2.   We would refer to the elasticity of demand as being ___________. Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.3.   As a result of the price change, we know that revenues will: Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.4.   Based on what you have learned in this question and your intuition, which of the statements is correct? A.  We want to increase prices when consumers are inelastic. That will increase revenue. B.  We want to decrease prices when consumers are inelastic. That will increase revenue. C.  We want to decrease prices when consumers are elastic. That will increase revenue.

Answer 1

1.
The elasticity is -0.54
Q1 Q2 Q2-Q1 % change in Q % change in P    Ep
350 310 -40 -11.42857143       21               -0.544
2.
The consumers of this product have a demand that is inelastic.
3.
In this case, revenues to the ABC corporation will decrease as a result of the price increase. FALSE (the revenues will increase with price increase).
4.
The elasticity is -0.65
Q1 Q2 Average Q2-Q1   % change in Q P1 P2 Average P2-P1 change in P Ep
500 620 560               120    21.428                 25 18 21.5       -7      -32.558 -0.65
5
We would refer to the elasticity of demand as being inelastic.