Econ practice set 3A

Let's say that Samsung raises the price of its smart phones from $600 to $700. As a result, Apple finds that it can sell 10% more Iphones. Based on this hypothetical example, what is the cross price elasticity of demand for Iphones relative to Samsung phones?

.65

A coffee shop notices that after it decreased the price of one of its premium coffees from $5 to $4, its daily revenue from this product decreased from $100 to $96. What is this product's price elasticity of demand? (choose the closest answer)

.81

Let's say that a car dealer lowers the price of a certain model car from $32,000 to $26,000. If it observes that it sells 14 cars instead of 10 per month as a result of this price decrease, what is this product's price elasticity of demand?

1.61

Let's say that a flower shop raises the price of a dozen roses by 40% and finds that it sells 100% fewer bouquets of roses. What is the price elasticity of roses for this flower shop?

2.5

If a product has a very low price elasticity of demand, then:

If buyers are very interested in buying the product, they will still be very interested in buying the product even if the price increases a lot.

Average incomes of buyers rises by 20%. As a result, buyers are buying 5% more of a certain product. This means that this product is ___________ and its income elasticity of demand is _____________.

a normal good; .25

Let's say that you know that a product is essential for people's lives, and that this product has very few substitutes (little competition), then you also know that this product has:

a very low price elasticity of demand and if the company raises the price of this product it will increase its revenue.

Let's say that you sell health insurance to two groups of buyers: 1. people who work for a company and whose company is paying for the health insurance; 2. people who don't work for a company and who have to pay for the health insurance out of their own pockets. Most likely, the people in group 1 have a _________ price elasticity of demand, and as a result, you can charge a _________ price, compared to those in group 2, in order to increase your revenue.

lower; higher

A gas station raises its price and notices that its total revenue decreases. This must mean that gasoline at this gas station around this price is:

price elastic

The steeper (closer to vertical) a product's demand curve, the:

the lower its price elasticity of demand