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2. Suppose you know that consumers incomes have increased, and that an advancement in technology has lowered the cost of making computers. Assuming that a

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2. Suppose you know that consumers incomes have increased, and that an advancement in technology has lowered the cost of making computers. Assuming that a computer is a normal good, what will happen to the equilibrium price and quantity of computers as a result of these two simultaneous changes? Draw a diagram to support your answer [10 marks] 3. Due to a fall in input costs, Starbucks reduced the price of their latte by 8 percent, and this resulted in a 21 percent increase in quantity demanded. What is the price elasticity of demand? What is the implication of this number and based on that, what advice will you give to the manager of Starbucks? {5 marks]

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