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1. A recent study determined the following elasticities for Volkswagen Beetles:

Price elasticity of demand 2

Income elasticity of demand 1.5

The supply of Beetles is elastic. Based on this information, are the following statements true or false? Explain your reasoning.

to. A 10% increase in the price of a Beetle will reduce the quantity demanded by 20%.

b. An increase in consumer income will increase the price and quantity of the Beetles Sold. Since the price elasticity of demand is greater than 1, total revenue will decline.