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Elasticity

Demand for cassette players can be characterized by the following:price elasticity=-2, cross-price elasticity with AAA batteries=-1.5, and income elasticity =3. Indicate if True or False and why:
a.A price increase for cassette players will decrease both the number of units demanded and the total revenue of sellers.
b. The cross price elasticity indicates that a 2%reduction in price of cassettes will cause a3%increase in battery demand.
c.demand for cassette players is price elastic and they are cyclical normal goods.
d. falling battery prices will definitely increase revenues received by sellers of both cassette players and batteries.

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a. A price increase for cassette players will decrease both the number of units demanded and the total revenue of sellers.
From price elasticity= -2, we know that the negative sign means a downward sloping demand curve and a price increase will decrease the number of units demanded;
From | price elasticity | =2 >1, we know the demand for cassette players is price elastic and the proportional decrease in units demanded is greater than the proportional increase in price. Therefore, a price increase will ...

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