1.Refer to the section on "Calculating the Price Elasticity of Demand". Review the formula for calculating price elasticity of demand and work out the following problem:

A number of retail stores in San Diego form a "District". In that district, a popular brand of lady's handbag was selling at $400.00 per bag. In one week, the combined sale in the district was 200. The District Manager then declared a sale of 25% on the handbags. As a result, sale of the handbags increased to 550 in the following week.

a.Calculate price elasticity of demand. (Use the following formula: Elasticity =(Change in quantity demanded/Average quantity)/(Change in price/Average price)

b.What does the coefficient of elasticity indicate? Explain your answer.