If a product has a price elasticity of demand of 2.0, the demand is said to be
Answer (C) is correct. Elasticity is a measure of the sensitivity of consumer reaction to a change in the price of a good or service. If price elasticity of demand is greater than 1, a certain percentage change in price will result in a greater percentage change in the quantity demanded. In this situation, demand is said to be relatively elastic.
When a 5% fall in the price of velcro shoes causes the quantity demanded to increase by 10%, the demand for velcro shoes is said to be
Answer (B) is correct. If the elasticity coefficient is greater than 1, demand is classified as relatively elastic. Since the percentage change in quantity demanded is 10% and the price change is 5%, the elasticity coefficient is 2.0 (10% ÷ 5%).
If oil producers and retailers were to increase the price of gasoline for cars during the summer season by $.05 per gallon, these suppliers anticipate that the demand for gasoline
Answer (B) is correct. An increase in gasoline prices during the summer implies that demand for gasoline is relatively price inelastic in the short run. That is, the price increase will result in little or no decline in the amount demanded, and total revenues will increase.
If the price of apples declines and total revenue received by the firm increases, the
Answer (A) is correct. A decline in price accompanied by an increase in total revenue indicates that quantity demanded has increased by a greater percentage than the percentage price decrease. Hence, the price elasticity of demand is greater than 1.0. Demand is elastic when it is greater than 1.0.
If a product’s demand is elastic and there is a decrease in price the effect will be
Answer (D) is correct. The concept of price elasticity is of great practical concern to management accountants because a knowledge of elasticity tells the accountant whether a price change will increase or decrease total revenue. If the demand elasticity is greater than one (i.e., demand for the product is elastic), a price decrease will cause an increase in total revenue because the demand increases by a greater percentage than the price decreases
Suppose that a stairway manufacturer’s price elasticity of demand was inelastic. If this manufacturer decided to increase the price of its stairways, what should have been the result?
Answer (B) is correct. Inelasticity refers to the condition in which the percentage change in quantity is less than the percentage change in price. If price increased 10%, the quantity
demanded would decline by less than 10%. Therefore, total revenues would increase.
If demand for a product is elastic, which one of the following would be true?
Answer (A) is correct. If the demand elasticity is greater than one (i.e., demand for the product is elastic), a price decrease will cause an increase in total revenue because the demand increases by a greater percentage than the price decreases.
The price elasticity of demand is most appropriately defined as the
Answer (D) is correct. The price elasticity of demand is most appropriately defined as the change in quantity demanded in relation to a change in price.
Which one of the following statements is the best definition of inelastic demand?
Answer (B) is correct. Relatively inelastic demand occurs when a large change in price results in a small change in quantity demanded.
Buyer-based pricing involves
Answer (C) is correct. Buyer-based pricing involves basing prices on the product’s perceived value rather than on the seller’s cost Nonprice variables in the marketing mix augment the perceived value. For example, a cup of coffee may have a higher price at an expensive restaurant than at a fast food outlet.