. a) The Hobbit family buys 72 vegetarian specials annually at a price of $3.00 each but would consume 192 per year if the price dropped to $2.40. Calculate their price elasticity of demand.

b) If a strong recovery raises national income from $4.0 trillion to $4.4 trillion and diamond sales jump from 3 million to 13 million carats annually, calculate the income elasticity of demand for diamonds.

c) If each 1 percent increase in the price of pencils causes a 2 percent decline in the quantity of erasers sold, the cross-price elasticity of demand for these goods is about _______ and the goods are ___________.

d) When John can sell totem poles for $1,800 each, he markets 60 annually. When the price falls to $600 each, he is willing to sell only 24 each year. What is his price elasticity of supply?

10. Government pays attention to the elasticity of demand when selecting foods and services upon which to levy excise taxes. Assume a $1.00 tax is levied on some good and 10,000 units are sold. a. What is the tax revenue collected?

Now, assume the government raises the tax to $1.50. This causes sales to decline to 5,000 units.

b. Calculate the price (tax) elasticity of demand.

c. Is it elastic, inelastic, or unit elastic?

d. What happens to total tax revenue?

e. Based on your elasticity coefficient, is the change in total tax revenue consistent with what you would expect to happen? Explain why or why not.

13. P1 = $4.50 P2= $5.00 Q1 = 45 Q2 = 40 a. Price elasticity of demand is ______________. Show your work.

b. Given the price elasticity of demand coefficient you have calculated, what would happen to the quantity demanded in percentage terms if the price increased by 10% in this range?

c. What would be the effect of the price increase above on total revenue? Explain.

15. Suppose the price of color print film has recently risen by 10% due to an increase in the cost of silver that is used to make film. As a result, less film is being sold in the camera store where you work. You do some checking and find that camera sales are down by 4% too. What is the cross-price elasticity of demand for cameras and film? Are these two goods complement goods or substitute goods?