Discussion qns on demand and Supply1. A researcher estimates that the price elasticity of the demand for automobiles = -1.2. and the income elasticity is 3.00. Next year the automakers want to increase the price of cars by 5% and they expect disposable income of consumers to go up by 3%. a) If sales are 8 million this year, how many are expected to be sold next year? b) By how much should automakers increase price if they wish to increase sales by 5% next year.

2. You are the curator of a museum. The museum is running short of funds, so you decideto increase revenue. Should you increase or decrease the price of admission? Explain.

3. The government decides air pollution should be reduced by reducing the use ofgasoline. A tax of $0.50 is imposed for each gallon of gasoline sold.a. Should they impose this tax ? Explain carefully using a demand-and-supply diagram.b. If the demand for gasoline were more elastic, would this tax be more effective or lesseffective in reducing the quantity of gasoline consumed? Explain with diagram(s).c. Are consumers of gasoline helped or hurt by this tax? Why?

4. How does the value of cross price and income elasticity help us to classify goods? If the price of Arrow shirts fall from Rs 1000 to Rs 900, Van Heusen experiences a 10% reduction in sales. Calculate the cross price elasticity.If Van Heusen wants to recover its sales it calculates that its prices have to be lowered by 20%. Calculate the price elasticity of van Heusen shirts.

5. Adidas observed that the sales of their Rs 3000 deluxe training shoes declined from 10,000 to 4800 during the last two weeks of December 2005. During that same time, Reebok offered a discount by reducing their sports shoes from Rs 3500 to Rs 2750.calculate the arc cross price elasticity of Adidas shoes

By reducing the prices to 2900, Adidas recovered by 1200. Calculate the price elasticity of demand for Adidas shoes