HBX Economics Questions and Answers (100% Correct Answers) Already Graded A+

Willingness to Pay (WTP) [ Ans: ] the maximum price an individual is willing to pay for a good or service Does a free good or service mean the WTP is 0? [ Ans: ] No Is WTP affected by price? [ Ans: ] No, it is an individual value developed by a variety of factors, but price is not one of them. Are demand curves affected by price? [ Ans: ] No, a change in price will move along the demand curve, but will not shift the curve. The demand curve shifts _________ as WTP decreases. [ Ans: ] left The demand curve shifts _________ as WTP increases. [ Ans: ] right Factors that affect WTP can also shift the demand curve. What are some examples? [ Ans: ] Income, gender, location, age, service level, brand, expectations, advertising, competition How is revenue shown on a graph? [ Ans: ] It is the square area under the curve with the top right corner equal to x. How is WTP shown on a graph? [ Ans: ] x=WTP, y=quantity; the graph looks like a histogram How is the demand curve developed? [ Ans: ] Aggregation of individual WTP; axes are flipped so that y=price and x=number of consumers An individual's demand curve slopes in what direction? [ Ans: ] Downward. The WTP for each consecutive item decreases. Price affects__________. [ Ans: ] the quantity demanded, not overall demand Define elasticity. [ Ans: ] A method for measuring slope consistently and how changes in price affect demand. An inelastic demand curve is ___________. [ Ans: ] Steep. This indicates that demand does not react to price easily. An elastic demand curve is ______________. [ Ans: ] Flat. This indicates that demand reacts to changes in price. How is elasticity calculated? [ Ans: ] % change in quantity demanded/%change in price What is the formula for elasticity? [ Ans: ] ((newQ oldQ)/oldQ)/((newP-oldP)/oldP); elasticity is an absolute value Why don't we use the demand curve to measure elasticity? [ Ans: ] The demand curve is affected by the unit of measure. Define cost-based pricing. [ Ans: ] Setting prices based on the cost of the price plus a certain percentage. Define value-based pricing. [ Ans: ] Setting prices based on WTP. When is revenue maximized? [ Ans: ] When elasticity is equal to 1. When demand is elastic you can ____________ prices. [ Ans: ] not raise When demand is inelastic you can ____________ prices. [ Ans: ] raise Elasticity varies along the demand curve, however ________ remains constant. [ Ans: ] slope How is elasticity used to measure other factors? [ Ans: ] You can replace price with another variable, like income, the price of a competitor's product, weather What is the