You own a restaurant. You just read that a recession will cause income to decrease by 10% this year. If this forecast turns out to be true, it will impact your restaurant. Income elasticity is 2.2. Current dinner prices are $15. You sell 350 dinners each week. Calculate the % change in the number of dinners, assuming that you don’t change your price.

a) what do you want to calculate?         Write the words first:_________________________

Rewrite using symbols:

b) what information is provided in the problem?

10% = _____________       2.2 = _______________        $15 = ______________           350 = __________

will price change? ________      what changed that will cause the change in Q? _________

c) look at the information you have & the question you want to answer, so we can think about how to build a bridge from the information to the answer:

what changed? _____________   what do you want to calculate? _______________

what elasticity will connect these 2 things? ____________________________.    The elasticity number is important, so think about it for a minute: Elasticity shows the response of one variable (usually Q) to a change in another variable.

This problem gives you a number for ______________ elasticity. This is the response of Q to a change in ____________.    Write this as a formula, remembering that elasticity measures responses as % change:                                 

                                                                                               ______

            e__________         =          % change in____               =        __________.

                                                  % change in                        ______

Does this formula include the variable that you want to calculate? What is it? _________________

In order to solve for this variable, you will need to fill in the other numbers. Do you have enough information to do that? ________ (Assume this answer is “yes”, so plug in the numbers.) Do a little algebra to solve: