1. A DVD store lowered the price of its DVDs from $20 to $10. Correspondingly, s
ID: 1136075 • Letter: 1
Question
1. A DVD store lowered the price of its DVDs from $20 to $10.
Correspondingly, sales increased from 1500 units to 2000 units per month
Using total revenue calculations, we can say that, given this change in price, total revenue
( Decreased / Increased )
In this case, demand is
(Elastic / Inelastic)
2.
When the price of cell phones increased from $10 to $14 production increased from 1,800 to 2,000 per month.
You can conclude that the supply of cell phones is price (inelastic/elastic)
3. When the price of cell phones increased from $14 to $16 production increased from 1,200 to 2,800 per month.
The price elasticity of supply is
A.
0.08
B.
0.16
C.
6.15
D.
None of the above.
Explanation / Answer
1.
Original Price = $20
New Price= $10
Original Quantity = 1500
New Quantity = 2000
Original Revenue= $20 x 1500 = $30000
New Revenue= $10 x $2000= $20000
Total Revenue= Decreases
Price elasticity of demand using the mid-point formula=
= (Change in Q/ Average Q) / (Change in P/ Average P)
= (-10/15) / (500/1750)
= -0.42
Since |PED| <1
Demand is Inelastic.
2.
Initial price= $10
New price= $14
Initial Quantity supplied= 1800
New Quantity supplied= 2000
Price elasticity of supply using the mid-point formula=
= (Change in Q/ Average Q) / (Change in P/ Average P)
= (200/1900) /(4/12)
= 0.27
Since 0.27<1, the price elasticity of supply is INELASTIC.
3.
Initial price= $14
New price= $16
Initial Quantity supplied= 1200
New Quantity supplied= 2800
Price elasticity of supply using the mid-point formula=
= (Change in Q/ Average Q) / (Change in P/ Average P)
= (1600/2000) / (2/15)
= 0.6 Since 0.6<1, the price elasticity of supply is INELASTIC
ANS. D NONE OF THE ABOVE.
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