Suppose Paula Flygare owns a 50-car parking lot and has two spaces unrented. You assure her that if she lowers the price 10 percent, she could rent out those two spaces. She replies: "You don't understand price elasticity of demand, do you?" What's her point?
Answer to relevant QuestionsPizza Hut spends $50 million on advertising each year and says every penny is worth it. Explain. Why are we relatively insensitive to price changes affecting low-priced goods such as bubble gum? Consider the illicit drug market. First-time drug users have different price elasticities of demand than addicts. Why the difference? The Diva at the Met gave the greatest performance of her life. The audience shouted "Bravo!" and threw roses onto the stage. The first delighted her but the 100th rose was pushed aside. Still she enjoyed the compliment. ...Suppose the following exhibit expresses your demand schedule for flowers: How much consumer surplus would you derive if price were $2? Using marginal utility analysis, explain what is meant by consumer surplus.
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