Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a touchscreen-only device. An 8-gigabyte version now costs $229, down from $299. A 32-gigabyte model costs $399, down from $499. Steve Jobs decided to decrease the price of iPods in an attempt to increase total revenue from iPod sales. One of his employees, Jess, disagrees and suggests that an iPod price increase will increase total revenue. Who is correct?
A) Steve is correct if demand is price elastic.
B) Steve is correct if demand is price inelastic.
C) Jess is correct if demand is price elastic.
D) Jess is correct if demand is unit elastic.

Question

Quizplus · Accepted Answer

Steve is correct if the demand for iPods is price elastic, which means that a decrease in price will lead to a proportionately greater increase in quantity demanded and total revenue. However, if demand is price inelastic (meaning a change in price has little effect on quantity demanded), Jess would be correct that an increase in price would increase total revenue. The answer cannot be D as it does not provide a clear indication of who is correct.

Apple, the Consumer Electronics Giant, on Tuesday Rolled Out New