(a) Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic. She argues 'I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor. If I wanted to buy a mystery novel I would have many authors to choose

from. Therefore, the demand for mystery novels is more elastic than the demand for my textbook.' Is Jill correct?

(b) Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Predict what will happen to your revenue if you reduce your price.

(c) Assume that the market for barley is in equilibrium and the demand for barley is inelastic. Illustrate what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley using a graph.

d) When the price of tortilla chips rose by 10 per cent, the quantity of tortilla chips sold fell 4 per cent, and the sale of dips (like salsa and bean dip) fell 8 per cent. What is the cross price elasticity between tortilla chips and dips? Explain how the two goods are related.