1.Suppose that I am selling cookies at a bake sale. I notice that when I charge $1 a cookie, I sell 8 an hour. When I charge $.50, I sell 20 an hour.

A.What is the price elasticity of demand for my cookies?Be sure to show your work!

B.This means that the demand for my cookies is (elastic or inelastic)elasticover this price change. Assuming that the demand for my cookies is a straight-line demand curve, the price elasticity between $1.50 and $1.00 should be (more elastic or less elastic)less elasticas it is between $1.00 and $0.50.

C.Given your answers so far, suppose that I am currently charging $1.00, but decide to decrease my price to $0.50. What will happen to my total revenues as a result? What are they in each case? Explain the intuition and reason why the result you got went in this direction.

D.Does your calculation of the price of elasticity of demand (i.e. elastic vs. inelastic) in parts b and c make sense given what you know about the determinants of price elasticity of demand. Briefly explain and be sure to mention at least 2 determinants of elasticity.