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# In 1997 the price of a local telephone call from most pay phones rose from 15 cents to 2

In 1997 the price of a local telephone call from most pay phones rose from 15 cents to 25 cents. What
effect do you think this will have on phone company revenues? Explain.

2.              When you buy a new car, the dealer presents you with a set of keys and you drive away into the sunset.
What would you do if, after agreeing to a price for the car, the dealer told you that a set of keys would cost
an additional \$5? What does this tell you about the price elasticity of demand for car keys? Explain.

3.              In terms of economic elasticities, why would farmers be upset to see a bumper crop?

4.              Imagine winning a radio trivia contest and being given the choice of three packages. Each package has two
prizes. One package has a cellular phone and a beeper; one package has a cellular phone and a coupon for
unlimited calls for a year; and one package has a cell phone and a compact disc player. Unfortunately, the
labels on the packages only give you the following information:  the goods in Package A have a cross
elasticity of 0.63, the goods in Package B have a cross elasticity of 0.00; and the goods in Package C have a
cross elasticity of –0.84.

a.Which package will you choose if you want the cellular phone and the coupon for unlimited calls?