Purchase Solution

Elasticity

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution

Solution Summary

The solution answers the question(s) below.

Solution Preview

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 ...

Purchase this Solution


Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.