Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 6, Problem 6DQ
To determine
Inelasticity of
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Consider two scenarios.Scenario 1: Assume the firm increased price of their Pepsi fizzy drink by 25% over 2022-2023.Scenario 2: Assume the firm increased price of their Pepsi fizzy drink by 5% in first quarter of 2024. For each scenario, do the following:▪ Draw a single straight-line demand curve and explain the relevant details on the price elasticity of demand (PED).▪ Show the workings of your calculation of PED.▪ Describe and quantify what would happen to revenue in this case.▪ In your answer, use hypothetical incremental values (rough guesses from your imagination) for the prices on the y-axis and quantities on the x-axis.
Q4. a) Give your own example (think about your own tastes&preferences, i.e., you cannot use
examples from the textbook) of a product that your demand is elastic. Assume that the price of this
product rises. What happens to total revenue of the producer? Explain why.
Product you choose:
TR declines or increases:
Explanation:
b) Give your own example (think about your own tastes&preferences, i.e., you cannot use examples
from the textbook) of a product that your demand is inelastic. Assume that the price of this product
rises. What happens to total revenue of the producer? Explain why.
Product you choose
TR declines or increases:
Explanation:
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