2. Elasticity of supply and demand a. Compute the elasticity of demand at Q = 4 (thousand). Show the computation. Answer: elasticity= -.8 b. Compute the elasticity of supply at Q = 12 (thousand). Show the computation. Answer: elasticity = 1.333 c. Assume income elasticity of demand is 1.5. By what percent would demand change if real incomes in New York and Los Angeles rise by 3% in an economic expansion? Answer: 4.5% 3. Assume the federal government imposes economic regulation on the airline industry as it did between 1938 and 1978. The regulated fare for the JFK-LAX route is $300. Show all computations. a. Compute the Quantity Demanded. Answer: q= 12 (thousands) b. Compute the Quantity Supplied. Answer: q= 6.67 (thousands) c. Compute the shortage. Answer: 6667-12000 = -5333