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Sensitivity of the demand for iPods

Evaluate how the following situations will affect the demand curve for ipods.
A. Income statistics show that income of 18-25 year old have increased by 10% over the last year.
B. Efforts of music artists wanting greater protection of their music result in more stringent enforcement of copyrights and the shutdown of numerous illegal downloading sites.
C. Believing that it has significant control of the market for portable digital music players, Apple decides to raise the price of ipods with the goal of increasing profits
D. The price of milk decreases

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Solution Preview

In order for you to know what will happen to the demand curve for ipods on the given situations you need to understand the concept of elasticity. Elasticity measures the responsiveness of one variable as a result of one percent change of another variable. Technically, the elasticity is defined as follow:

A elasticity of B is the percentage change of B given one percent change in A.
Or it can be expressed as: (%∆ in B) ÷ (%∆ in A).
That is we are interested to know how many percent B will change given one percent change in A.

For situation A:
We want to know what will happen to demand for ipods as income of 18-25 year old have increased. This is ...

Solution Summary

What will happen to the demand curve for iPods given changes to certain variables depend on the nature of the variable in question? If the variable in question is related to iPods, it can have a positive or a negative correlation and the correlation can be weak or strong. Positive or negative correlation will influence the direction of the movement in the demand curve for iPods. Whereas, how strong or weak the responses depend on the elasticity measures.