HW 5

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

decrease the price of ice cream.

An increase in price causes an increase in total revenue when demand is

inelastic

Demand is inelastic if the price elasticity of demand is

less than 1.

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

0.75

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

0.33.

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

0.67, and an increase in price will result in an increase in total revenue for good A.

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

0.67.

Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is

1.14

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

3.48%, and aluminum foil sellers' total revenue will increase as a result.

If the price elasticity of demand for a good is 2, then a 10 percent decrease in the quantity demanded must be the result of

a 5 percent increase in the price.

The price elasticity of demand measures

buyers' responsiveness to a change in the price of a good

Which of the following is likely to have the most price elastic demand?

diamond earrings

Demand is said to have unit elasticity if the price elasticity of demand is

equal to 1.