Questions:

Elasticity

11 Suppose that the price elasticity of demand for cigarettes is 0. 46 1n the short run and 1 89 in the long run the income elasticity of demand for cigarettes is 0.50 and the cross- price elasticity of demand between cigarettes and alcohol is O.70. Suppose also that the price of cigarettes, the income of consumers, and the price of alcohol all increase by 10 percent. Calculate by how much the demand for cigarettes will change (a) in the short run and (b) in the long run. *12. The management of the Mini Mill Steel Company estimated the following elasticities for a special type of steel: E1P = 2, E I = 1. and Em, : 1.5, where X refers to steel and Y to aluminum. Next year, the rm would like to increase the price of the steel it sells by 6 percent. The management forecasts that income will rise by 4 percent next year and that the price of aluminum will fall by 2 percent. (a) If the sales this year are 1,200 tons of the steel. how many tens can the rm expect to sell next year? (b) By what percentage must the rm change the price of steel to keep its sales at 1,200 tons next year? :- f1