Question

LEARNING OBJECTIVE: Calculate elasticities using several different methods and understand the economic relationship between revenues and elasticity. 2.1 Fill in the missing amounts in the following table: % Change In Price % Change In Quantity - 25% Elasticity - 1.0 + 50% b. -0.2 Demand for the Apple iWatch Demand for roses on Valentine's Day Demand for electronic cigarettes - 10% +38% 2.2 Use the table in the preceding problem to defend your answers to the following questions: a. Would you recommend that Apple raise or lower its price for the iWatch to increase revenue? b. Would you recommend that florists raise their prices for roses on Valentine's Day if their only goal is to increase revenues? c. Would you recommend that electronic cigarette vendors cut prices to increase revenues?

can you pls solve 2.1 and 2,2 pls

Answer 1

2.1 a) % change in price = % change in quantity / elasticity = -25%/-1 = 25%

b) % change in quantity = % change in price * elasticity = 50% * -0.2 = -10%

c) elasticity = % change in quantity / % change in price = 38%/-10% = -3.8

2.2 a) Apple should not involve in price change. This is because the revenues are not going to change when elasticity is 1. This is because any percentage increase (or decrease) in price will decrease (or increase) sales by same percentage so revenue will be same.

b) Yes. The elasticity is less than 1 so any price increase by a given percentage will result in lower sales by a lower relative percentage so that revenues will eventually increase

c) No. The elasticity is more than 1 so any price increase by a given percentage will result in reducing sales by a higher relative percentage so that revenues will eventually decrease