Suppose the Cross-Price Elasticity of Demand Between DVDs at Amazon

question 204

Multiple Choice

Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5.Based on this information, predict what happens when Amazon.com lowers its DVD prices by 10 percent.

• A)The quantity of DVDs demanded on Amazon.com will increase by 35 percent.
• B)The quantity of DVDs demanded on Buy.com will increase by 35 percent.
• C)The quantity of DVDs demanded on Amazon.com will decrease by 35 percent.
• D)The quantity of DVDs demanded on Buy.com will decrease by 35 percent.

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Definitions:

Residual Value

The estimated value that an asset will have at the end of its useful life, often used in calculating leases and depreciation.

Financial Lease

A type of lease in which the lessee has use of the asset for most of its useful life, and the lease terms closely resemble the terms of a purchase agreement.

Property Taxes

Taxes levied by local governments on real estate, based on the property's value, used to fund public services and infrastructure.

CRA

Canada Revenue Agency, the federal agency responsible for administering tax laws for the Government of Canada and for most provinces and territories.