During the 1980\'s, an increase in the price of cinema tickets would lead to a r
ID: 1133621 • Letter: D
Question
During the 1980's, an increase in the price of cinema tickets would lead to a relatively smaller percentage decrease in the quantity of tickets demanded. In 2015, since the introduction of online video streaming, a cinema knows that if it were to increase prices of cinema tickets, a relatively larger percentage decrease in the quantity of tickets demanded would occur. Based on the above paragraph, which of the following are true? 1. In the 1980's the demand for cinema tickets was relatively more elastic than it is in 2015 2. In the 1980's the demand for cinema tickets was less elastic than it is in 2015. 3. We can infer that in 2015, if the current price of cinema tickets increased, then the point elasticity of demand after the price increase would be greater than 1. Only 1 is true. Only 2 is true. Both 1 and 2 are true. Both 2 and 3 are true All three are true. QUESTION 2 Merchandise for popular television series, movies or musicians can be highly sought after by fans. Suppose a band sells 512 T- shirts for $35 each at a concert in Brisbane. They decide to increase the price to S40 each at the next concert in Sydney and selll 488 T-shirts. Which of the following statements are true (to four decimal places): The point price elasticity of demand for the T-shirts at a price of $35 is 0.3281 The point price elasticity of demand for the T-shirts at a price of $35 is 0.0142. 0 A 1% increase in the price of the T-shirts would lead to a 0.3281% decrease in the number of T shirts sold. A 1% increase in the price of the T-shirts would lead to a 0.0142% decrease in the number of T shirts soldExplanation / Answer
Answer 1: Both 2 and 3 is correct because as in 1980 the only source of watching movie in cinema hall but in 2015 online movies are available 24 hours . According to our convenience we can watch the movie so demand for cinema ticket what is less elastic than in 2015 as now the price increases for the cinema ticket then the people are more elastic people are more elastic and it can be greater than 1.
Answer : Point Elasticity Formula:
E d = % Change in quantity demanded/ % Change in pricd
E d = (488-512)*35/512*(40-35) = 0.3281
Option A is correct as point Elasticity of demand is 0.3281.
Option C is correct .As Elasticity formula decreasibes that a one percent increase in the price of T- Shirt would lead to 0.3281 decreases in number of T- shirt demanded.
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