Exercise 1

When a restaurant charges 10$ per meal (per person) it found that Mr. and Mrs. Binh, who are typical customers, dined out once a month, Ceteris Paribus. When the restaurant, as a promotional device, introduced a voucher system giving patrons two meals for the price of one, the Binh's dined out three times a month.

a. Calculate the elasticity of demand for this restaurant

b. Explain what impact the promotional vouchers had on the Binh's monthly expenditure on meals at this restaurant. Is the change in total expenditure consistent with the value of demand you calculate?