Apple, the Consumer Electronics Giant, on Tuesday Rolled Out New

question 321

Multiple Choice

Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a touchscreen-only device. An 8-gigabyte version now costs $229, down from $299. A 32-gigabyte model costs $399, down from $499. Steve Jobs decided to decrease the price of iPods in an attempt to increase total revenue from iPod sales. One of his employees, Jess, disagrees and suggests that an iPod price increase will increase total revenue. Who is correct?

• A) Steve is correct if demand is price elastic.
• B) Steve is correct if demand is price inelastic.
• C) Jess is correct if demand is price elastic.
• D) Jess is correct if demand is unit elastic.

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Definitions:

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense over its useful life.

Commercial Substance

A concept in accounting that indicates a transaction has significantly changed the economic conditions or the cash flows of an entity.

Units-Of-Production

A method of depreciation that distributes an asset's cost across its lifespan according to the quantity of units manufactured.

Double-Declining-Balance

An accelerated method of depreciation that doubles the rate at which an asset's book value decreases, resulting in higher depreciation expenses in the early years.