1. Sales data for laptop computers sold in a market indicate the following: 1) A
ID: 1250939 • Letter: 1
Question
1. Sales data for laptop computers sold in a market indicate the following: 1) At a $1,500 price 120,000 laptops were sold and 2) When prices fell to $1,200 sales increased to 160,000 units sold.Describe the nature of demand for these laptops AND describe any price elasticity of demand coefficients that would be consistent with these facts.
2. You know absolutely nothing about the price elasticity of demand coefficient for a hypothetical product. However, you DO know that whenever product selling prices have risen, the seller’s total revenues have risen dramatically.
Describe the nature of demand for this product AND describe any price elasticity of demand coefficients for the product that would be consistent with these facts.
3. Prices for a hypothetical good have been falling over an extended time period. Describe at least two non-governmentally-caused market demand conditions that might explain these decreases in price. Be specific in your answer.
Explanation / Answer
To find the price elasticity of demand, you look at the %change in quantity/% change in price 1. The percent change in quantity is 160000-120000/120000 = 33%. The % change in price is 1200-1500/1500 =(-)20%. The price elasticity of demand would be 33/(-)20 = (-)1.66. Since this is greater than -1 and less than negative infinity, the demand would be characterized as relatively elastic (or just elastic) 2. The dramatic increase in revenue when the price increases would mean that demand is highly inelastic (a coefficient between -1 and 0, exclusive). If the revenues increase no matter what the price is, then the demand could be characterized as perfectly inelastic (a coefficient of 0) 3. There are many possible market demand conditions that could cause price of a good could fall. The price of a substitute good could be decreasing, or possibly some alternative good has caused our hypothetical good to become obsolete, causing the demand for our hypothetical good to fall and subsequently reducing its price for a fixed supply. Also, if incomes are falling, and the good is not considered a necessity, the demand for the good could fall causing a similar decrease in the price of the hypothetical good.
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