A family friend is shopping for an exclusive Vera Wang wedding ...

[jasdeep_brar]

A family friend is shopping for an exclusive Vera Wang wedding gown for 8,000 but feels that the price is excessive. She argues that the company should lower prices not only to benefit customers but also to increase the company's revenues and profits. What has she assumed about the price elasticity of demand for these gowns? Is her assumption likely to be correct or incorrect? Why?

Question 2

If the velocity of money (V) and real output (Q) were increasing at approximately the same rate, then:
 a. it would be impossible for monetary authorities to control inflation.
 b. monetary acceleration would not lead to inflation.
 c. inflation would be closely related to the long-run rate of monetary expansion.
  d. none of the above

[aliotak]

Answer to Question 1

In this case the friend has assumed that demand is elastic and that a decrease in price would lead to an increase in total revenues. However, her suggestion is likely incorrect being that the exclusive nature of these gowns would mean that many of the existing customers would be willing to purchase the gowns even if the price rose dramatically. As such, the demand is more likely to be inelastic.

Answer to Question 2

c

[jasdeep_brar]

Thanks for the timely response, appreciate it

[ricroger]

Gracias!