Consider the market for athletic shoes, currently in LR equilibrium.

(a) (4 pts) A new study recently came out that showed that Americans REALLY need to increase their physical activity to avoid health complications from COVID. What will this do to the MARKET price and quantity? A Supply/Demand graph will help.

(b) (4 pts) Now, assume that you are the operator of Sue's Shoes, an independent athletics shoe manufacturer and seller. Given the shock above, you perform a diff-in-diff analysis and determine that your price elasticity of demand is now equal to -2. If a pair of Sue's Shoes costs $90, and your marginal costs per pair are $35, are you pricing optimally? Fully justify your answer.

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