A Sporting Goods Store Observes That as They Reduce the Price

question 76

Multiple Choice

A sporting goods store observes that as they reduce the price of squash balls from $5 to $4, their quantity demanded rises from 200 to 220. Rounding to the nearest tenth, they correctly compute the elasticity of demand of squash balls to be:

• A) 0.1.
• B) 0.4.
• C) 2.3.
• D) 5.

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Definitions:

Discount Period

The timeframe during which a discount is offered for early payment on sales made on credit, aiming to encourage prompt payment.

Credit Period

The duration of time a buyer is allowed to pay for goods or services purchased on credit, typically measured in days from the invoice date.

Sales Returns and Allowances

A deduction from gross sales that reflects products returned by customers or allowances granted for damaged or unsatisfactory goods.

Contra-Sales Account

An account used to record sales returns, allowances, and discounts which offsets the gross sales on the income statement.