Suppose that you're the manager of a firm. You notice that when you raised your price from $10 to $11, sales fell from 500 to 400. Should you raise your price more?
What will be an ideal response?
No. In fact, you should lower your price. At this price, the elasticity of demand is 2, so you're operating on the elastic portion of your demand curve. Here, it makes sense to lower the price to increase revenues.
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Of the following situations, explain which are best described as games and which are best described as just decisions:
a. Starbucks is deciding whether to offer a new, 40 oz. option called the Uberventi. b. Sasha is deciding whether to order a grande latte or venti latte from Starbucks. c. The people of Catalonia are deciding whether to vote for independence from Spain. d. MGM Resorts International is preparing to bid to obtain the last available casino license in Macao. e. The Hollywood Hills Homeowner Association is debating the landscape design for the renovation of the main entrance to their neighborhood.
If the Fed targets the interest rate, then: a. the money supply will grow at a more controlled rate
b. monetary policy will reinforce fluctuations in economic activity. c. the price level will be more stable in the long run. d. money demand will be more stable. e. velocity will be less stable.