NAME:P UlZ on price elasticity of demand Multiple Choice dentity the choice that
ID: 1138816 • Letter: N
Question
NAME:P UlZ on price elasticity of demand Multiple Choice dentity the choice that best completes the statement or answers the question NOTE: You may write on this questionnaire for your computations. 1) An economist estimates that 83 is the price elasticity of demand for disposable razors. This suggests that disposable razor producers could: A. advertise more to raise the price elasticity of demand B. encourage more people to use non-disposable razors C. lower the price of disposable razors to raise more revenue. D. maximize revenues by staying at the current price E. raise the price of disposable razors to raise more revenue. If Johnny, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to pizzas per week, then the demand for Johnny's pizzas in this range is: A. price inelastic. B. price elastic. C. unit elastic 2) Exhibit 5-6 Demand curve for concert tickets Price per 30 (dolles) 20 10 10 20 0 40 3) In Exhibit 5-6, suppose promoters charge a price of $30 per ticket. How much total revenue will their sales generate? A. $300,000. B. $400,000C. $500,000 D. $600,000. with a great reputation in court. She charges her clients $300 for each hour she spends her income increased to $490,000 what can we say about the elasticity of demand for Anita's legal services? working on their cases. If she earned $450,000 in hourty wages last year, and by raising her rates to $350 per hou A. It is approximately equal to 2.3 B. It is approximately equal to 1.6. C It is approximately equal to 1.0. D. It is approximately equal to 0.45. E. It is approximately equal to 0.1. 5) A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly orice $40. The price elasticity of demand for memberships at this health club is: A. 0.25. D. 0.83 E. none of the above
Explanation / Answer
1. If the demand for a good is inelastic, which in our case is 0.83, the increase in price will lead to rise in total revenues. So the razor producers raise the price of razors to increase their revenues. However if they would have decreased the price when demand is inelastic tis would have resulted in loss of revenue.
2. .The formula for elasticity of demand by arc method is
=(Change in Q/Change in P)*(Average P / Average Q)
The absolute price elasticity of demand is 2.2 and hence we say the demand is price elastic.
3. As per the graph given above, at $30 price the quantity demanded is 10,000 units. The total revenue can be calculated by multiplying price and quantity. TR=P*Q = 30*10000 = 300,000. The correct option therefore is A.
4. The demand for legal services is inelastic which means even after raising the fees, she has managed to increase her earnings. The elasticity comes to about 0.45.
=(Change in Hours/Change in Fees)*(Average fees / Average Hours worked)
5. The absolute value of elasticity of demand for memberships is 0.83. The formula used is
=(Change in memberships(no))/Change in P)*(Average P / Average no of memberships)
P Quantity change in P change in Q Average p Average Q Ed(Arc) 6 400 5 600 -1 200 5.5 500 -2.2Related Questions
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