Suppose consumers spent $42 million on Christmas trees last year when the average tree cost $30 and this year spend $42 million when the average tree costs $25. Assuming nothing else changed, this data suggests that
a. consumers bought the same number of Christmas trees this year as last year
b. the price of Christmas trees stayed the same
c. total revenues to tree producers rose this year
d. the demand for trees is unit elastic
e. the demand for trees is inelastic
D. unit elastic
To determine the correct answer, we need to compare the total spending on Christmas trees between last year and this year.
Total spending on Christmas trees last year:
Total spending = Average tree cost * Number of trees sold
= $30 * Number of trees sold
Total spending on Christmas trees this year:
Total spending = Average tree cost * Number of trees sold
= $25 * Number of trees sold
From the given information, we know that the total spending on Christmas trees was $42 million both last year and this year.
Therefore, we can set up the following equation:
$30 * Number of trees sold = $25 * Number of trees sold
By simplifying the equation, we can see that the number of trees sold is the same in both scenarios.
This indicates that consumers bought the same number of Christmas trees this year as last year. Thus, the correct answer is (a) consumers bought the same number of Christmas trees this year as last year.
To determine which option is correct, let's analyze the given data and compare the two scenarios:
Last year:
- Total spending on Christmas trees: $42 million
- Average cost per tree: $30
- Number of trees bought = Total spending / Average cost per tree
= $42 million / $30
= 1,400,000 trees
This year:
- Total spending on Christmas trees: $42 million
- Average cost per tree: $25
- Number of trees bought = Total spending / Average cost per tree
= $42 million / $25
= 1,680,000 trees
Comparing the two scenarios, we see that the number of trees bought increased from 1,400,000 to 1,680,000. Therefore, option a. consumers bought the same number of Christmas trees this year as last year is incorrect.
Now, let's consider option b and analyze the change in the average cost of Christmas trees. It is evident that the average cost decreased from $30 to $25. Therefore, option b. the price of Christmas trees stayed the same is also incorrect.
Next, let's analyze the impact on total revenues to tree producers.
Last year: Total revenues = Total spending = $42 million
This year: Total revenues = Total spending = $42 million
Since the total spending remained the same, option c. total revenues to tree producers rose this year is also incorrect.
Now, let's consider option d and examine the elasticity of demand for trees.
The elasticity of demand measures how responsive the quantity demanded is to a change in price.
In this case, as the price of Christmas trees decreased from $30 to $25, the quantity demanded increased from 1,400,000 to 1,680,000 trees.
Since the percentage change in quantity demanded (approximately 20%) is greater than the percentage change in price (16.67%), the demand for trees is elastic, suggesting that option d. the demand for trees is unit elastic is incorrect.
Finally, since the demand for trees is elastic (quantity demanded increased more than the price decrease), option e. the demand for trees is inelastic is the correct answer.