Answer to Question #311905 in Macroeconomics for Hes

Question

13. According to a study, the price elasticity of shoes in the United States is 0.7, and the income

elasticity is 0.9.

a. Would you suggest that the Brown Shoe Company cut its prices to increase its revenue?

b. What would be expected to happen to the total quantity of shoes sold in the United

States if incomes rise by 10 percent?

Answer 1

a)No, brown shoe should retain the price because the price elasticity of demand is less than 1, it means the demand for shoes is inelastic.

b)The quantity of shoes sold will remain or otherwise decrease since the price elasticity of demand the shoes is inelastic so as the price increases, the demand for them decreases.