a)Yourboss has noticed that it would be useful for your firm to understand howconsumers behave when variables in the market change and how these changes affectthe total revenue for your product. Youhave been asked to do graphical and empirical simulation analysis on the following types of elasticity.You are also required to explain the factors that influence them:

(i)Price elasticity of demand.

(ii)Price elasticity of supply.

(iii)Cross price elasticity of demand, and

(iv)Income elasticity of demand.

Report the results clearly.

(40 marks)

b)Calculate the following elasticity of demand:

(i) Income ofconsumers changes by 10%, and as a result the quantity demanded for Good Achanges by 8%.

(ii)The price ofcompeting Good B decreases by 5% and as a result, the quantity demand forGood A decreases by 8%.

Demonstrate both elasticities graphically.

(30marks)

c)Sport cars have an elastic demand whereas rice has an inelastic demand. Recent technological advances have raised the supply of both products.Examine the effects on the following:

(i)Changes in price and quantity equilibrium in each market.

(ii)Total revenue earned on each product.

(30 marks)