Assume the Price of a Product Rises from $2 to $3

question 105

Multiple Choice

Assume the price of a product rises from $2 to $3 and the quantity demanded of the product decreases from 600 to 400.The price elasticity of demand coefficient,using the midpoint formula,is:

• A) 0.40.
• B) 1.00.
• C) 1.60.
• D) 2.10.
• The change in quantity is (400 - 600)/(400 + 600)= 0.20 and the change in price is (3 - 2)/(3 + 2)= 0.20.Thus,price elasticity is 0.20/0.20 = 1.0.

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Definitions:

Income Statement Accounts

Accounts that are used to prepare the income statement, summarizing a company's revenues, expenses, and profits over a period.

Deferrals

Income or expenses that have been recorded but not yet earned or used, respectively, affecting future accounting periods.

Recognition

The process of recording an item or event in financial statements once it meets the criteria for financial reporting as defined by accounting standards.

Matching Principle

An accounting principle that requires companies to report expenses at the same time as the revenues they are related to are earned.