If a 50 Percent Increase in the Price of Hula

question 174

Multiple Choice

If a 50 percent increase in the price of hula hoops led to a 10 percent reduction in the quantity of hula hoops purchased, the price elasticity of demand is

• A) 5 and the demand for hula hoops is elastic.
• B) 0.2 and the demand for hula hoops is elastic.
• C) 5 and the demand for hula hoops is inelastic.
• D) 0.2 and the demand for hula hoops is inelastic.

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Definitions:

Cost of Capital

The rate of return that a company must achieve in order to justify the cost of an investment, often influencing investment decisions.

Beta

A unit of measurement for the swings, or integral risk, experienced by a security or portfolio in relation to the wider market.

Common Stock

An equity investment representing ownership in a company, entitling holders to vote at shareholder meetings and receive dividends.

Weighted Average Cost

A method of calculating the total cost of goods sold or assets that weighs each item's cost proportionately.