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Determinants of price elasticity

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1) Define utility and marginal utility?
2) What is the price elasticity of demand?
3) Relate price elasticity to changes in total revenue with a price increase?
4) List and discuss the determinants of price elasticity.
5) How do normal and inferior goods differ?
6) Define technological (or production) efficiency?
7) Differentiate between fixed costs and variable costs?
8) Differentiate between explicit and implicit costs?

Questions Shiller text The economy today isbn 0-07-297911-9 - 10th edition

Chapter 20
Ques. 9 If you owned a movie theater, would you want the demand for movies to be elastic or inelastic?

Extra Question:
NPD INTELECT Market Tracking is a leading provider of sales tracking services for the consumer electronics, home appliance, information technology and imaging industries. Use the following data to answer the questions below.

Sales and Price data for DVD players
Price Sales
1998 $504 697,432 units
2001 $192 4,257,913 units

a. Assuming nothing else changed during the time period of the data except product price, use the data provided in the press release to calculate the price elasticity of demand for DVD players between 1998 and 2001.
b. Interpret the value that you calculated for part 'a'.

Chapter 21
Ques. 2 Suppose all your friends offered to help wash your car.
Would marginal physical product decline as more friends helped? Why or why not?

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Solution Preview

1) Define utility and marginal utility?
2) What is the price elasticity of demand?
3) Relate price elasticity to changes in total revenue with a price increase?
4) List and discuss the determinants of price elasticity.
5) How do normal and inferior goods differ?
6) Define technological (or production) efficiency?
7) Differentiate between fixed costs and ...

Solution Summary

This gives the determinants of price elasticity

$2.19
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Price elasticity of demad, determinants of elasticity

#1: (Categories of Price Elasticity of Demand) for each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. In addition, determine what would happen to total revenue if a firm raised its price in each elasticity range identified.
a. ED = 2.5
b. ED = 1.0
c. ED = 8
d. ED = 0.8

#4: (Determinants of Price Elasticity) Why is the price elasticity of demand for Coca-Cola greater than the price elasticity of demand for soft drinks generally?

#3: (Alternative Measures of Profit) Calculate the accounting profit or loss as well as the economic profit or loss in each of the following situations:
a. A firm with total revenues of $150 million, explicit cost of $90 million, and implicit costs of $30 million

b. A firm with total revenue of $125 million, explicit costs of $100 million, and implicit costs of $30 million

c. A firm with total revenue of $100 million, explicit costs of $90 million, and implicit cost of $20 million

d. A firm with total revenues of $250,000, explicit costs of $275,000, and implicit costs of $50,000

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