Directions: Please respond to each question below:

1. Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses that use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher productivity? Is society getting a free lunch?

2. Suppose that your demand schedule for pizza is as follows:

Price	Quantity Demanded (income = $20, 000)	Quantity Demanded (income = $24, 000)
$8	40 pizzas	50 pizzas
10	32	45
12	24	30
14	16	20
16	8	12

a. Use the midpoint method to calculate your price elasticity of demand as the price of pizza increases from $8 to $10 if (i) your income is $20,000 and (ii) your income is $24,000.

b. Calculate your income elasticity of demand as your income increases from $20,000 to $24,000 if (i) the price is $12 and (ii) the price is $16.

3. Draw a supply-and-demand diagram with a tax on the sale of a good. Show the deadweight loss. Show the tax revenue.