1. List and explain the four determinants of the price elasticity of demand.

2. What must be the case in order for revenue to increase due to a price decrease?

3. Characterize income elasticity of demand.

4. Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions. (a) What happens to the price of coffee beans? (b) What happens to the price of a cup of coffee? What happens to total expenditure on cups of coffee? (c) What happens to the price of donuts? What happens to the total expenditure on donuts?

5. What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?

6. What determines how the burden of a tax is divided between buyers and sellers? Why?