1. Assume that amazon.com cut the price on a 1.10ct Princess Cut Diamond Solitaireengagement ring from $5,500 to $3,500, and sales rose from 75 to 150 units per week.

a. Calculate the implied arc price elasticity of demand.

b. Is a further price decrease warranted? Why or why not?

2. What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic?

a.Cigarettes

b.Restaurant meals

c.Motor vehicles

d.Electricity (household)

e.Sugar

f.Medical care

g.Gasoline

h.Legal services

i.Automobile repair

j.Diamond bracelet