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You are told that:   a

Economics

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You are told that:

 

a. the price elasticity of demand for widgets is -0.75 (its absolute value is, therefore,

 

0.75),

 

b. the income elasticity of widgets is 2, and

 

c. the cross-price elasticity of widgets and gadgets is 4.

 

Part 1:

 

Keeping in mind that raising prices results in decreasing sales:

 

a. what will be the percentage change in quantity demanded if prices are increased

 

by 50%?

 

b. Will the total revenue of the firm increase, decrease, or remain the same when

 

prices are increased by 50%?

 

Part 2:

 

If there is a 20% across the board increase in income taxes, lowering the income of all

 

consumers:

 

a. Will the sales of widgets increase, decrease, or remain the same?

 

b. By what percentage amount will the quantity sold change, if at all?

 

Part 3:

 

If gadget prices rise by 15%:

 

a. In what direction (increase, decrease, or no change) will widget sales change

 

b. By what percentage amount will widget sales change, if at all?