Think of a good that you have purchased recently. Be specific (e.g. is it breakfast cereal in general or Cheerios cereal specifically).

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1. If the price of this item increases, how would this affect the quantity of the good that you consume?

2. Is the demand for this good price elastic or price inelastic? Justify your classification by talking about the determinants of elasticity as they apply to this product.

3. Say price is on the rise for this product and you are the manager of a store, would you be thrilled to be selling this product? Under what circumstances would you want to own a business that sells this product? In other words, how does an increase in price for this good affect your Total Revenue?

4. Using specific examples, relate the concepts of Cross Elasticity and Income Elasticity to this product.

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Suppose I bought Cheerios cereal for breakfast.

1. If the price of Cheerios cereal increases, I can always find cereals of others brands that are cheaper or any other cheaper option for breakfast. So, quantity of consumption of this good is expected to decrease due to an increase in price.

2. Demand for Cheerios cereal is price elastic. This is because of the following facts:

a. There are plenty of close substitutes available in the market for this product. A product which has many close substitutes tends to be price elastic. In case of increase in price of such good, consumers can easily switch over to other cheaper substitutes available in the market. In the case of a product that does not have many close substitutes available, consumers do not option to switch over to other substitutes. That is why products with lesser substitutes tend to be price inelastic. Cheerios cereal has many competing brands in the market which are close ...

Solution Summary

Solution discusses the demand behavior of a particular product in the light of elasticity concepts.

With respect to the price elasticity of demand, construct a graph using the data in figure 1. Illustrate the ranges on the demand curve that indicate elastic, inelastic, and unitary elasticity. Explain your answers. Enter non-numerical responses in the same worksheet using tax boxes.
Quantity total

Suppose that your demand schedule for cell phone applications is as follows:
Quantity Demanded per Year Quantity Demanded per Year
Price per Application (income = $40,000 per year) (income = $50,000 per year)
$ 2

1. Answer the following questions based on the accompanying diagram
a. How much would the firm's revenue change if it lowered price from $12 to $10? Is demand elastic or inelastic in this range?
b. How much would the firm's revenue changed if it lowered price from $4 to $2? Is demand elastic or inelastic in this range?
c. Wha

See the attached file.
1. Consider an inverse demand function p=40-q/5
(a) Find the price elasticity when price is $5.
(b) Find the price at which elasticity is -0.6.
(c) Suppose you are currently producing 125 units. If you raise your quantity a little bit, will your revenue increase or decrease? Using elasticity concept,

Suppose the price of apples rises from $3 a pound to $3.45 and your consumption of apples drops from 30 pounds of apples a month to 21 pounds of apples. Calculate your price elasticity of demand of apples. What can you say about your price elasticity of demand of apples? Is it Elastic, Inelastic, or Unitary Elastic? Be sure to s

ABC, Inc sells it toys for $15 with a sales volume of 30,000 units per quarter. Assume the price elasticity coefficient is -0.5 and ABC, Inc raises the price to $16 in anticipation of the Christmas season. Estimated 4th quarter sales volume will be?
Use Are formula elasticity of demand.

Quantity Price Elasticity
Demanded
100 $ 5
80 $10
60 $15
40 $20
20 $25
10 $30
1. Determine the price elasticity of demand at each quantity demanded using the formula % chg in QD divided by % chg in price.
2. Redo #1 using price changes of $

Demand for cassettes can be characterized by the following point elasticities:price elasticity =-2,cross price elasticity with aaa batteries is -1.5, and income elasticity =3. please explain the following statement.
a. A 3% price reduction in cassette players would be necessary to overcome the effects of a 2% decline in inco