A Local Doughnut Shop Reduced the Price of Its Doughnuts

question 48

Multiple Choice

A local doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:

• A) elastic.
• B) inelastic.
• C) unitary elastic.
• D) indeterminate; more information is needed to determine the price elasticity of demand.

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Definitions:

Net Float

The difference between check amounts written and deposited in the clearing process, affecting the available balance in the account.

Disbursement Float

The time lag between when a payment is made by writing a check and when the funds are actually withdrawn from the payer's account.

Collection Float

The interval between depositing a check into a bank account and the moment the deposited funds are accessible.

Outstanding Cheques

Checks that have been written and issued but not yet cashed or cleared through the banking system.