Question 1 Response: Income elasticity is the relationship between the quantities of goods demanded relative to changes in the customer’s income. Income elasticity shows how the percentage of demand changes due to changes in the customer’s income. Income elasticity is calculated by taking the percentage change in demand and dividing it by the percentage change in income.
Question 2 Response: Cross-price elasticity of demand is the relationship between the demand for one good based on the price change for another good. Cross-price elasticity of demand shows by what percentage the demand for a good changes based on price change of another good. Cross-price elasticity of demand is calculated by taking the percentage change in the quantity demanded for one good divided by the percentage change in price for another good.
Question 3 Response: Total revenue is the total dollar amount of sales made over a specific accounting period. Total revenue is calculated by adding up the total number of units sold by the selling price for each unit (Accounting Tools, n.d.).
Question 4 Response: Elastic means that changes in the price of a good creates large fluctuations in demand. Inelastic means that changes in the price of a good has little or no effect on demand. Unitary elasticity means that the percentage change in price will cause demand to change by the same percentage. Total revenue changes significantly when a company sells elastic goods. Total revenue shows little change over time when a company sells inelastic goods. Total revenue remains relatively fixed when a company sells unitary elastic goods (Iowa State University, 2007).
Question 8 Response: The income elasticity of demand for Good A is 0.80. The higher the elasticity, the more sensitive consumer demand is to changes in the price of Good A. Conversely, the lower the elasticity, the less sensitive consumer demand is to changes in the price of Good A. Since the income elasticity at 0.80 is less than 1, Good A should be an inelastic good (Boise State University (n.d.).
Question 9 Response: The cross-elasticity of demand measures the demand of one good relative to the price of another good. Goods are compliments for each other when the demand for two goods drops in responses to a price increase in one of the goods. Conversely, goods are substitutes for each other when a price increase in one good causes increased buying of the other good. In this case, the cross-elasticity of demand for Good A is 1.60. Since the quantity demanded for Good A decreased by 8 percent and the price of Good B decreased by 5 percent, Good A and Good B have no relationship to each other (Suffolk County Community College, (n.d.).
- Accounting Tools. (n.d.) What is Gross Revenue? Retrieved June 10, 2014 from
http://www.accountingtools.com - Boise State University. (n.d.) Principles of Microeconomics. Retrieved June 10, 2014 from
http://web1.boisestate.edu - Iowa State University. (2007). Elasticity of Demand. Retrieved June 10, 2014 from
http://www.extension.iastate.edu - Suffolk County Community College. (n.d.) Measuring Elasticity of Demand. Retrieved June 10,
2014 from http://www2.sunysuffolk.edu
