1. (12 marks)

Suppose a local supermarket runs a discount campaign on the sales of shampoos using discount coupons - any customer who shows a discount coupon will be offered an X% discount on the original retail price.

a. Briefly explain the economics behind this discount campaign. (3 mark)

b. Suppose the supermarket estimates that coupon users have a demand elasticity of -4 while non-coupon users will have a demand elasticity of -2.5. What should be the value for "X"? Explain with calculations. Be step-by-step. (Hint: Take the ratio between the prices for coupon and non-coupon users.) (5 marks)

c. Discuss TWO practical limitations for the supermarket to conduct this discount campaign. (4 marks)