Question

- Define what happens to revenue and why, when there is a price increase in a product that has a price elasticity of demand that is elastic, inelastic, and unity elastic. In your answer be sure to also explain what makes price elasticity of demand elastic, inelastic, and unit elastic.

Answer #1

**When price elasticity of demand is elastic - The
increase in prices of a product reduces the revenue earned from
that product for an elastic demand.**

(The price elasticity of demand being elastic means that the %
change in quantity demanded is greater than the % change in
price)

**When price elasticity of demand is inelastic - The increase
in prices of a product increases the revenue earned for a product
with inleastic demand, or price elasticity of demand less than
1**

(The price elasticity of demand being inelastic means that the %
change in quantity demanded is less than the % change in
price)

**When price elasticity of demand is unity elastic - The
increase in prices of a product has no effect on the revenue earned
from that product.**

(The price elasticity of demand being unity elastic means that for
a % change of price, the % change in quantity demanded is
numerically equal.)

1. When an increase in price of product A results in a sales
decrease of product A and product B, the two products are said to
be:
a) Dynamic
b) Complementary
c) Subsitutes
d) Interactive
2. A product’s price has increased by 25% but demand has not
been affected. It can be concluded that this product has:
a) Unitary elasticity
b) Inelastic demand
c) Slightly inelastic demand
d) Elastic demand

Assume you are selling a product in which at a price of $10, you
can sell 90 units. When the price increases to $11, you can only
sell 63 units. Given this change in price and sales, answer the
following:
What is the price elasticity of demand for your product?
Is demand elastic, unit-elastic or inelastic?
What is the change in revenue for this product from the price
increase?

1. The price elasticity of demand for iphone 6 is 1.2. Apple
wants to increase its total revenue. Would you recommend that Apple
raise or lower the price of iphone 6? Explain your answer.
2. The demand of gasoline is more inelastic in the short run
than in the long run. Why? Give examples that illustrate why the
demand of gasoline in the long run is not inelastic.
3. Choose one of the products or services that your company
provides,...

How is total revenue increased when demand is elastic?
If an increase in price causes an increase in total
revenue, demand is said to be inelastic
and if an increase in price causes a decrease in total
revenue, then demand is said to be
elastic… There’s no way for total revenue to
increase when demand is elastic, right?

Categories of Price Elasticity of Demand
For each of the following values for price elasticity of demand,
indicate whether demand is elastic, inelastic, perfectly elastic,
perfectly inelastic, or unit elastic. Also, indicate (increase,
decrease, no effect) what would happen to total revenue if a firm
raised the price in each elasticity range.
Price Elasticity of Demand
equals
Descriptionn of Elasticity
Total Revenue Change
-2.5
-1.0
-0.8
-infinity
0

A technological breakthrough shifts the supply curve to the
right. What happens to the price of the product to consumers when
the price elasticity of demand is inelastic and elastic? Draw the
graphs to represent both conditions. In which condition do
consumers save more?

The price elasticity of demand for a product is -0.5. You know
that...
Demand for this product is inelastic.
Demand for this product is neither elastic or inelastic. It is
"unit elastic."
Demand for this product is elastic.
Not enough information to answer this question.

The CEO of Mainway Toys wants to increase total revenue for the
firm and proposes a 10% decrease in the price of all toys.
a. The price elasticity of demand for toys is 2.5. Is the demand
for toys price elastic, unit elastic, or price inelastic?
b. Will the CEO’s proposal to decrease all toy prices by 10%
increase, decrease, or have no impact on total revenue for Mainway
Toys? Explain.
c. Assuming the demand for Mainway Toys is linear,...

when demand is inelastic, an increase in price will lead to an
increase in total revenue for the product.
-True
-Flase

1. Price Elastic or Inelastic Good
a.What is an example of a product (or group of products) which you
buy or sell whose demand is price inelastic (or, if you prefer,
price elastic). In your answer, be sure to state carefully what it
means for demand to be "price inelastic" (or price elastic).
b. What is it about this product or these products that makes
either you or buyers in general TEND to continue to purchase it (if
you’re thinking...

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