When the price of a movie ticket falls from $14 to $10, the quantity of tickets demanded increases from 500 to 700 a day. What is the price elasticity of demand for movie tickets? (Use the midpoint method.)
What will be an ideal response?
The price elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in the price). Using the midpoint method to calculate the percentages, the percentage change in the quantity demanded = (700 - 500 ) ÷ (600 ) × 100 = 33.3 percent and the percentage change in the price is ($10 - $14 ) ÷ ($12 ) = -33.3 percent. We ignore the negative sign so that the price elasticity of demand equals (33.3 percent) ÷ (33.3 percent), or 1.00.
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a. reduce price in order to increase sales and gain a larger share of the total market. b. increase price in order to get a larger share of the market and make larger profits. c. restrict output and raise price in order to achieve higher profits. d. maintain agreements to lower price and decrease product quality in order to earn higher profits.
Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:
A. increase the risk of lending. B. offer higher rates of return than available elsewhere. C. have a monopoly on lending. D. reduce the cost of gathering information about borrowers.
For a given price level, an upward shift of the expenditures schedule corresponds to an
A. inward shift of the aggregate demand curve. B. outward shift of the aggregate demand curve. C. outward shift of the aggregate supply curve. D. inward shift of the aggregate supply curve.
The reason why some economists believe that attempts by the Fed to surprise the public in a systematic way cannot be successful is that
A. information about the Fed's plans will inevitably be leaked to the public. B. competition in the money markets would neutralize the Fed's intervention. C. the Fed announces its goals before Congress and publishes its policy actions in the Federal Reserve Bulletin six weeks after they take place. D. the public would eventually figure out what the Fed's policies were, negating the Fed's surprise.