Supposethatgasolinepricesincreasedramaticallythismonth.Lolacommutes100milestoworkeachweekday.Overthenextfewmonths,Loladriveslessontheweekendstotrytosavemoney.Withintheyear,shesellsherhomeandpurchasesoneonly10milesfromherplaceofemployment.Theseexamplesillustratetheimportanceof
A. the availability of substitutes in determining the price elasticity of demand.
B. a necessity versus a luxury in determining the price elasticity of demand.
C. the definition of a market in determining the price elasticity of demand.
D. the time horizon in determining the price elasticity of demand.
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Ifthepriceelasticityofdemandforagoodis4.0,thena10percentincreaseinpriceresultsina
A. 0.4 percent decrease in the quantity demanded.
B. 2.5 percent decrease in the quantity demanded.
C. 4 percent decrease in the quantity demanded.
D. 40 percent decrease in the quantity demanded.
Thevalueofthepriceelasticityofdemandforagoodwillberelativelylargewhen
A. there are no good substitutes available for the good.
B. the time period in question is relatively short.
C. the good is a luxury rather than a necessity.
D. All of the above are correct.
Thelocalbakerymakessuchgreatcinnamonrollsthatconsumersdonotrespondmuchatalltoachangeintheprice.Iftheownerisonlyinterestedinincreasingrevenue,sheshould
A. lower the price of the cinnamon rolls.
B. leave the price of the cinnamon rolls unchanged.
C. raise the price of the cinnamon rolls.
D. reduce costs.
Whendemandiselastic,adecreaseinpricewillcause
A. an increase in total revenue.
B. a decrease in total revenue.
C. no change in total revenue but an increase in quantity demanded.
D. no change in total revenue but a decrease in quantity demanded.
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