1. If the price of Brand X straight leg distressed jeans is reduced from $100 to
ID: 1176377 • Letter: 1
Question
1. If the price of Brand X straight leg distressed jeans is reduced from $100 to $80 a pair, and quantity demand increases from 500 to 1,000 what is the coefficient of demand elasticity? Show your solution.
2. Suppose you own the retail shop that sells Brand X jeans in question (1) above, did you make the right decision of reducing prices by 20%? Fully explain your answer and show your solution.
3. How would you interpret a vertical demand curve (in terms of elasticity)? Can you think of a product/service where demand curve could be vertical? (Note: It would be easier to answer this question if you sketch such a demand curve %u2013 no need to show me the graph.)
4. What are two reasons why governments impose an excise tax on some/specific products? Support your answer by including an example of a product where an excise tax is charged.
Explanation / Answer
1.elasticity = (dQ/dP)*(P/Q)
= (500/20)*(90/750) = 3
p and q are average price and average quantiites
2. yes since the price elasticity is high so there is more demand of the product now and hence morre profit
3.vertical demand curve has infinite elasticity.Any product produce by monopolist which quantity not change with price change can be the example of it
4.first to earn revenue and second to reduce it's consumption like on alcohol aur ciagarates
tax is charged on tabacco and alcohol to reduce their consumtion and to earn revenue
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