' i i. ....|i..i..'--i'iil,uwm Section 2-Calculatlon, Graphing and Short Answers (Note: please show the process of your calculation or explain your answers) 1. (Elasticity; Substitutes). On your Monday morning commute to work, you] stop at a local gas station and are surprised to learn that the price of gasoline doubled over the weekend. (10 points) a) Would you still ll up your nearly empty gas tank and drive to work? b) Now suppose it has been more than two years since the gas price doubled, and the gas price remained high. What would people likely due to adjust to the \"permanently" higher gas price? 2. When the price of a ashlight is $5, the number of flashlights demanded is 600 units. When the price increases to $20 per unit, the quantity demanded falls to 200 units. Moreover, if the price of the cells used to operate these flashlights falls by 200 percent, the demand for flashlights increases from 200 units to 300 units. (12 points) a) Calculate the arc price elasticity of demand. b) Calculate the cross-price elasticity of demand. c) When .loe earns $30, he purchases 20 flashlights. When his income increases to $120, his quantity demanded increases to 60 units. Calculate Joe's income elasticity of demand for ashlights. 3. Why would it be valuable for a business to know the cross elasticity of demand for the two products it produces: peanuts and popcorn? (10 points)