3.3 Elasticity of Demand

Describe your demand for a product if you buy the same amount of it or just a small amount less after a large price increase.

• elastic

• unitary elastic

• inelastic

• hyperelastic

Which of the following is an example of inelastic demand?

• Jason wants the most expensive cellphone. He decides to get a cheaper model.

• Priya wants to go to the season-opening game. Tickets to another game cost less, but she still buys tickets for the opener.

• Tianna wants to try out a new, expensive restaurant. She goes to another restaurant whose food is excellent and costs less.

• Shawn wants to buy a house in one neighborhood. But after searching, he decides to buy a house elsewhere instead.

How does elasticity affect potential revenue for a firm?

• If demand for a good is inelastic, lowering the price could raise revenue.

• If demand for a good is inelastic, raising the price could reduce revenue.

• If demand for a good is elastic, raising the price must increase revenue.

• If demand for a good is elastic, raising the price could reduce revenue.

Shana continues to buy a necessary medicine even though prices for the medicine rise sharply. Shana's behavior shows how

• the passage of time affects elasticity.

• the law of demand eliminates elasticity.

• luxury goods are nut subject to elasticity.

• demand for necessities is inelastic.

Suppose demand for a product is highly elastic. What will likely happen to a company's total revenue if it raises the price of that product?

• Total revenue will rise.

• Total revenue will fall.

• Total revenue will remain the same.

• Total revenue will fluctuate.

Why does demand generally become more elastic over time?

• People don't change their shopping behavior over time.

• Few substitutes become available.

• People buy more products over time.

• People have time to find substitutes and change behaviors.

Do higher prices lead to increased revenues for a company?

• always

• sometimes

• never

• only when demand is elastic

The Larvine family was on a tight budget, but they loved Japanese food. Every Friday, the family of five ate dinner at the only Japanese restaurant in town. A month ago, however, a new owner raised the prices of the family's favorite dishes by 10 percent. The extra cost forced the Larvines to limit their restaurant dinners to once a month.

What can you say about the Larvines' demand for meals at the Japanese restaurant?

• It is elastic; a small increase in price resulted in a large decrease in consumption.

• It is unitary elastic; a small increase in price resulted in a small increase in consumption.

• It is unitary elastic; a small increase in price resulted in a small decrease in consumption.

• It is inelastic; a small increase in price resulted in a small decrease in consumption.