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    The marketing department of a company manufacturing and selling washing machines has found that its product has a price elasticity of demand equal to -0.75. This suggests that if the ompany raises the price of washing machines
    A the quantity demanded will fall by 75%.
    B the amount consumers spend on the product will increase.
    C the quantity demanded will increase by 75%.
    D the amount consumers spend on the product will fall.

    Answer is B, but Why ?
    Thanks
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    (Original post by Hi, How are you ?)
    The marketing department of a company manufacturing and selling washing machines has found that its product has a price elasticity of demand equal to -0.75. This suggests that if the ompany raises the price of washing machines
    A the quantity demanded will fall by 75%.
    B the amount consumers spend on the product will increase.
    C the quantity demanded will increase by 75%.
    D the amount consumers spend on the product will fall.

    Answer is B, but Why ?
    Thanks
    PED is inelastic. So demand will not change much in response to a change in price.

    So a 20% increase in price will lead to a 15% fall in quantity demanded or a 40% increase in price will lead to a 30% fall in quantity demanded. It will only lead to a decrease of 75% in q demanded if price increases by 100% and we don't have enough info to make that assumption.

    So A and C are wrong.

    Amount consumer spends on the product will fall if the percentage increase in price leads to an even larger fall in quantity demanded.
    So a 20% increase in price leads to a 25% fall in quantity demanded.


    For a lot of goods and services PED is negative it's best to just ignore the negative sign.


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    (Original post by KJKA)
    PED is inelastic. So demand will not change much in response to a change in price.

    So a 20% increase in price will lead to a 15% fall in quantity demanded or a 40% increase in price will lead to a 30% fall in quantity demanded. It will only lead to a decrease of 75% in q demanded if price increases by 100% and we don't have enough info to make that assumption.

    So A and C are wrong.

    Amount consumer spends on the product will fall if the percentage increase in price leads to an even larger fall in quantity demanded.
    So a 20% increase in price leads to a 25% fall in quantity demanded.


    For a lot of goods and services PED is negative it's best to just ignore the negative sign.


    So would consumers increase their spending if the % increase in price leads leads to a smaller % decrease in QD and that can only happen if the PED is inelastic ?
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    (Original post by Hi, How are you ?)
    So would consumers increase their spending if the % increase in price leads leads to a smaller % decrease in QD and that can only happen if the PED is inelastic ?
    I'm a little confuse by your question do you mean

    An increase in price say 20% leads to a increase in demand but not as much so 10% increase in q.demanded. So spending would increase and PED is inelastic.

    I use to use tutor2u when I was revising economics this might be useful.

    http://www.tutor2u.net/economics/rev...of-demand.html
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    PeD= 0.75 is inelastic, this is a steep line in a demand and supply graph, this shows that a big change in price has little effect on demand.
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    Does anyone have the AQA ECON1 June 2012 paper official markscheme , if yes then please may you attach/upload on this thread thanks ...

    ( I will + Rep )
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    If I'm not mistaken, for May 2012 it's

    1. B
    2. C
    3. D
    4. C
    5. A
    6. D
    7. D
    8. C
    9.A
    10. C
    11. A
    12. B
    13. D
    14. C
    15. B
    16. C
    17. B
    18. D
    19. D
    20. A
    21. A
    22. B
    23. C
    24. A
    25.B
 
 
 
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