1. Suppose that many varieties of lettuce have been damaged in a particular season by disease. Only green leaf lettuce is unaffected. Typically, the demand for green leaf lettuce is fairly elastic, as red leaf, romaine, etc. can serve as close substitutes. However, this season, the price of green leaf lettuce goes up by 50%, while the quantity demanded drops by 5%. Calculate the elasticity of demand for green leaf lettuce. Is it elastic this season? Why or why not? 2. Suppose that there is a large price increase for all types of salad dressing. What would you expect to happen to the demand for lettuce? Explain your answer using the term "cross price elasticity of demand". 3. Suppose average real incomes go up by 10% in one year. During that year suppose that: purchases at dollar stores decline by 2%, purchases of dishwashing liquid soap increase by 2%, and purchases of new automobiles increase by 12%. Using the terminology of income elasticity of demand, discuss which of these is likely an inferior good, normal good, or even closer to a luxury good. 4. Imagine that you work at a theater, and there is a meeting concerning how to best increase the total revenue coming into the theater. One group is arguing that the way to increase total revenue is by reducing the ticket price, while the other group is arguing that the way to increase revenue is to increase the ticket price. Analyze each group's argument in terms of what they are implicitly assuming about the price elasticity of demand for tickets. 5. Suppose two nations, Beta and Gamma, each make aircraft and corn. The main resource in each nation is hours of "labor". Production occurs in each nation according to the following table. With one hour, a worker in each nation can produce the following: Table showing Aircraft and Corn produced per hour Aircraft Corn Beta 1 per hour 500 per hour Gamma 2 per hour 300 per hour What is the opportunity cost of each good (in terms of the other good) for each nation? Try creating a small table of the opportunity costs such as this: Beta: 1 aircraft = _______ corn 1 corn = _______ aircraft Gamma: 1 aircraft = _______ corn 1 corn = _______ aircraft If these two nations trade, what good should each specialize in and export to the other? What would be the range for the terms of trade (price of aircraft in terms of corn, for example) that would make both of these nations benefit economically from trade