Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are told that: a. the price elasticity of demand for widgets is -0.75 (its absolute value is, therefore, 0.75), b. the income elasticity of

You are told that:

a. the price elasticity of demand for widgets is -0.75 (its absolute value is, therefore,

0.75),

b. the income elasticity of widgets is 2, and

c. the cross-price elasticity of widgets and gadgets is 4.

Part 1:

Keeping in mind that raising prices results in decreasing sales:

a. what will be the percentage change in quantity demanded if prices are increased

by 50%?

b. Will the total revenue of the firm increase, decrease, or remain the same when

prices are increased by 50%?

Part 2:

If there is a 20% across the board increase in income taxes, lowering the income of all

consumers:

a. Will the sales of widgets increase, decrease, or remain the same?

b. By what percentage amount will the quantity sold change, if at all?

Part 3:

If gadget prices rise by 15%:

a. In what direction (increase, decrease, or no change) will widget sales change

b. By what percentage amount will widget sales change, if at all?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sociology Of Economic Innovation

Authors: Francesco Ramella

1st Edition

1317621344, 9781317621348

More Books

Students also viewed these Economics questions

Question

3. Avoid making mistakes when reaching our goals

Answered: 1 week ago