You Are the Manager of a Local Flower Shop and You

question 70

Multiple Choice

You are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross- price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor decreases the price of her flowers by 10 percent, you should expect which of the following?

• A)a 2.6 percent decrease in the demand for your flowers
• B)a 26 percent increase in the demand for your flowers
• C)a 2.6 percent increase in the demand for your flowers
• D)a 26 percent decrease in the demand for your flowers

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Definitions:

Trade Deficit

A situation where a country's imports exceed its exports, leading to net outflow of domestic currency to foreign markets.

Exports

Goods or services sent from one country to another for sale or trade, contributing to a country's economy.

Imports

Goods or services brought into one country from another for the purpose of sale.

Comparative Advantage

A principle that states a country should produce goods and services at a lower opportunity cost than its trade partners.