Question

A shop sells 20 hats per week at $10 each. When it increases the price to...

A shop sells 20 hats per week at $10 each. When it increases the price to $12, the number of hats sold falls to 15 per week. Which of the following statements are correct?

1. When the price increases from $10 to $12, demand increases by 25%.

2. A 20% increase in the price causes a 25% fall in demand.

3. The demand for hats is inelastic.

4. The elasticity of demand is approximately 1.25.

Homework Answers

Answer #1

statement 2 is correct.
1)
the demand decreases from 20 to 15, not increase.
incorrect statement
2)
change in quantity=(15-20)/20
=-25%
the quantity decreases by 25%
increase in price=(12-10)/10=20%
the statement is correct
3) and 4)

price elasticity of demand=(change in quantity demanded/average quantity)/(change in price/average price)
change in quantity demanded=(15-20)=-5
average quantity demanded=(15+20)/2=17.5
change in price=(12-10)=2
average price=(12+10)/2=11
E=(-5/17.5)/(2/11)
=-1.57142857
second method
E=%change in quantity/%change in price
=-25/20
=-1.25
3 incorrect and 4 is correct

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
(64)Suppose that the quantity of oranges sold increases by 45 percent when the price of tangerines...
(64)Suppose that the quantity of oranges sold increases by 45 percent when the price of tangerines increases by 25 percent. What is the coefficient of cross price elasticity of demand for these fruits? (a)2.5 (b)3.2 (c)1.8 (d)0.3 (65)Given the coefficient of cross price elasticity of demand for the fruits in Q#64 above, which of the following statements is true? (a)They are complements (b)Their demand curve is negatively sloped (c)Their cross elasticity of demand is negative (d)None of the above (66)Which...
At 40 cents apiece, Mr. Jones sells 250 candies per week. If he drops his price...
At 40 cents apiece, Mr. Jones sells 250 candies per week. If he drops his price by 10 cents, his weekly sales will increase to 300 candies per week. Calculate the elasticity of demand for candies. Write your answer in answer slot #17 (accurate to 3 decimal places). Your answer to question #17 suggests that demand for candies is a) Elastic. b) Inelastic. c) Unit elastic. d) Perfectly elastic. e) Perfectly inelastic. 19. Using the total revenue test, Mr. Jones...
Cough drop’s regular price is $3.80 and sells 810 bags. When price increases to $4.20, 790...
Cough drop’s regular price is $3.80 and sells 810 bags. When price increases to $4.20, 790 bags are still sold. The revenue at the regular price is $3.80 * 810 = $ 3,078 and revenue at the higher price is $4.20 * 790 = $ 3,318 1)Increasing this item’s price made its revenue RISE/FALL 2)The above item’s price elasticity of demand is ELASTIC/INELASTIC 3) The above item’s price elasticity of demand has an absolute value LESS/GREATER than 1.0. The item’s...
A local pizzeria sells 400 medium pizzas per week at a price of $10 each. The...
A local pizzeria sells 400 medium pizzas per week at a price of $10 each. The price elasticity of demand for its pizza is −4. In the scenario above, if the pizzeria cuts the price by 10%, it will sell _____ pizzas per week. 360 240 520 440 560 In the scenario above, as a result of the 10% price cut, the pizzeria's total revenue will: Increase by 17% Decrease by 10% Increase by 26% Remain unchanged Decreased by 19%
(67)Suppose that when the price of cherries is $10 per lb, the quantity supplied of cherries...
(67)Suppose that when the price of cherries is $10 per lb, the quantity supplied of cherries is 20 lbs. When price of cherries is $6 per lb, the quantity supplied of cherries is 12 lbs. The price elasticity of supply is: (a)1.7 (b)1.0 (c)2.5 (d)0.8 (69)Suppose you are a member of a local soccer club. The goal of your soccer club is to increase the amount of revenue earned from ticket sales in the local competition. Two executives of the...
1. If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes...
1. If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by what percent? 2. If the price elasticity of demand for chicken is 2, then a 20% decrease in the price of chicken will lead to what percentage increase in the quantity demanded of chicken? 3. When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price...
If the quantity demanded decreases by %15 and the price goes from 1.25 to 1.75 what...
If the quantity demanded decreases by %15 and the price goes from 1.25 to 1.75 what is the elasticity of demand? Is it elastic or inelastic? If the price goes down by 20% and the quantity sold increases from 80 to 120 units what is the elasticity of demand? Is it elastic or inelastic?
8. When the price increases by 30 percent and the quantity demanded drops by 30 percent,...
8. When the price increases by 30 percent and the quantity demanded drops by 30 percent, the price elasticity of demand is unitary elastic. elastic. perfectly inelastic. inelastic. perfectly inelastic. 9. If the cross-price elasticity of demand between Good A and Good B is 2 and the percentage change in price of Good A is 5 percent, what is the percentage change in quantity demanded of Good B? -3 percent 1.50 percent 10 percent 3 percent -1.25 percent
When Vincent’s Produce increases the price of strawberries from $4.75/pound to $5.25/pound, he finds that sales...
When Vincent’s Produce increases the price of strawberries from $4.75/pound to $5.25/pound, he finds that sales drop from 330 pounds/week to 310 pounds/week. Calculate the price elasticity of demand for Vincent’s strawberries. Is demand elastic, inelastic or unit elastic? Did Vincent’s revenue from strawberry sales increase, decrease or stay the same? Med rents surfboards on the big island of Hawaii. He’s been charging $10/hour and averages 32 rentals an hour. When he lowered the rate to $9.50/hour the average hourly...
2. For the following questions calculate the relevant elasticity and classify it as elastic, inelastic, or...
2. For the following questions calculate the relevant elasticity and classify it as elastic, inelastic, or unit elastic. (Be sure to have the correct sign with your answers) a. The price of roses goes from $0.75 to $1.25 per stem causing the quantity demanded to fall from 205 to 195 stems per week. b. An increase in the price of pizza from $1.90 to $2.10 per slice causes an increase in supply from 57 to 63 slices per day. c....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT