For the last time, consider again theoriginaldemand and supply schedules for Mars bars.

Price ($)

1.00

1.50

2.00

2.50

3.00

Demand

600

550

500

450

400

Supply

300

400

500

600

700

Suppose you own a discount food store and you currently charge $1.50 for a Mars bar. To increase your total revenue you are thinking of increasing the price to $2.00.

Calculate the price elasticity of demand for Mars bars over this price range. Is demand elastic or inelastic?(4 marks)

Calculate the total revenue you earn at $1.50 and the total revenue you earn at $2.00.(2 marks)

Should you increase the price? Why or why not?(2 marks)

Briefly explain what the aggregate demand (AD), short run aggregate supply (SAS) and long run aggregate supply (LAS) curves represent. Briefly state the factors that shift each of the three curves.