If the price of Dave's sneakers drops from $50 to $40 a pair, the number of sneakers that the Dave's Shoe Company sells increases from 10,000 pairs to 13,000 pairs.

1. Is the demand for Dave's sneakers elastic or inelastic, and how were you able to determine its elasticity?

1. Now assume that Tyler Tennis Shoe Company is the only close substitute for Dave's sneakers, and that the Tyler Tennis Shoe Company manufacturing capacity and all of its inventory is destroyed. What will happen to the price and quantity sold of Dave's sneakers? Explain why.