Read the scenario below and answer the questions that follow:

A small company that sells films and videos wants to increase its sales revenue. One option is to offer a discount of 10% to each film/video sold. The company knows that its products can be divided into sub-divisions based on the production and ownership of the content in the film/video. The table below shows the responses of each 'content' to the discount.

Local content Foreign content

Sales before 10% discount: 1.55 million 1.50 million

Sales after 10% discount: 1.65 million 1.70 million

Source: Examiner

Question 1 (20 marks)

1.1 Using the mid-point formula, calculate the price elasticity of demand for each content. (5)

1.2 Based on the revenue test to price elasticity of demand, which 'content(s)' should be accorded the discount? Explain. (4)

1.3 The Government wishes to increase its revenues and plans to impose a tax on the film/video retail industry, but has no intention of driving retailers out of business. Which of the two (2) contents should be taxed or not taxed? Substantiate your answer. (5)

1.4 What do you think would happen to the price elasticity of demand for local content in the following cases?

(i) Foreign content is banned in the country. (2)

(ii) Due to aggressive advertising, foreign live styles are thought to be attractive and a desire to associate with foreign 'things' increases. (2)

(iii) A country's wealth increases and the consumption of entertainment, including films/videos, becomes insignificant to a consumer's budget. (2)