Question

11.

You decrease the price of your product but you find that revenues are falling. Given this information, you can conclude that the elasticity of demand for your product is:

		A.  unitary elastic
		B.  inelastic
		C.  elastic

10.

If the Smithson Industrial Product Corp. firm lowers the price of its product and finds that total revenues increase, we can conclude that:

A.  consumers are elastic and are price sensitive

B.  consumers are inelastic and are not price sensitive

C.  consumers are unitary elastic

Marks University performs a study and determines that the demand for attendance has a .72 price elasticity.

9.1.  

If the University increases its price by 12%, how will attendance (quantity of students) be impacted?
(***Hint: This is a problem you have to work backwards. Start by writing out your equation for Ed. But remember, you have to put the negative sign back in!! Plug in what you know and solve for the unknown.)

Marks University performs a study and determines that the demand for attendance has a .72 price elasticity.

9.2.  

Given the estimated elasticity of .72, what advice would you give the University's administration?

		A.  raise price because it will increase revenues
		B.  do not raise price because it will decrease revenues
		C.  revenues will not be impacted by a price change
		D.  there is not enough information to tell what would happen Product x has an elasticity of 1.7 at its current price. If price falls by 3%, what will be the % change in quantity? Taxes are imposed on items like cigarettes, alcohol, and gasoline because they are able to generate significant tax revenue. Based on your understanding of elasticity, these items make good places to tax because they have demands that are elastic. T/F

Answer 1

1.
B. inelastic
When the demand is inelastic the total revenue moves in the direction of price change.Therefore, a decrease in the price will lead to a decrease in the total revenue.
2.
A. consumers are elastic and price sensititve
The price elasticity of demand is the measure of degree of responsiveness to a change in the prices.A price decrease will lead to a large increase in the total revenue.
3.
Ed=% change in quantity demanded/% change in price
% change in quantity demanded=Ed* % change in price
=0.72*12
=8.64%
4.
The answer is A
A. raise price because it will increase revenues
Since the price elasticity is less than 1 therefore an increase in price will lead to an increase in the total revenues.