Elasticities are a huge tool for economists and business folk as well. So I am going to ask you a couple of questions that you can, actually must, use price elasticity of demand to help you arrive at an answer. Each of these questions can be answered in a couple of sentences.

1) Some folks claim that if we raise the tax on cigarettes it will induce people to quit smoking. Are these claims genuine or are some folks just blowing smoke? Why?

2) Part 2 of the above question is that regardless of your answer to question 1 do you believe that we should increase the tax on cigarettes? Why?

3) Some folks take an "eat the rich" approach to taxation. In particular, many years ago a Senator from Mass. pushed through a tax on yachts. What do you think happened to tax revenue and why?

4) Here is one that I like to ask in class. When we talk about price elasticity of demand we relate it to changes in revenue but not to changes in profit. We know of two cases in which total revenue will increase--raise price on an inelastic good or lower price on an elastic good. However, only in one of these cases is total profit "guaranteed to increase. Which one and why?

5) Another of my favorites. Lets say that throughout the entire range of production that price elasticity of demand is unit elastic. You are a one person operation with no competitors (you are the entire market) and you can produce 10 units per week--one each every morning and one each afternoon of a 5-day work week. How many units should you produce and why?