If the Elasticity of Demand for the Latest American Idol

question 93

Multiple Choice

If the elasticity of demand for the latest American Idol album is 1.4, this means

• A)few substitutes for the American Idol album exist.
• B)a 1 percent increase in the price leads to a 14 percent decrease in quantity demanded.
• C)a 10 percent decrease in the price leads to a 140 percent increase in quantity demanded.
• D)a 5 percent increase in the price leads to a 7 percent decrease in quantity demanded.

---

Definitions:

Variable Cost

Costs that change directly in proportion to changes in the volume of production or sales, such as raw materials and direct labor.

Contribution Margin

The amount by which a product's sales price exceeds its variable costs, indicating how much contributes to covering fixed costs and generating profit.

Machine Hour

A measurement of production time, counting one hour of operation of a machine or a piece of equipment for manufacturing purposes.

Sales Margin

The difference between the selling price of a product and the cost of goods sold, expressed as a percentage of sales, indicating the profitability of a product.