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Elasticity Practice Problem Set We can gain insight by manipulating the price elasticity of demand equation....

Elasticity Practice Problem Set

We can gain insight by manipulating the price elasticity of demand equation. With the information provided below, demonstrate what happens in the specific markets. Show all work.

a) Suppose there is a technological change that allows manufacturers to make Android smartphones much more cheaply. In fact, the retail price falls by 15%, ceteris paribus. If the price of elasticity of demand is -0.8, how much does the quantity demanded change?

b) In an alternative scenario, ceteris paribus, suppose there is a new tax on data usage.The after-tax monthly bill increases by 10%. If the price elasticity of demand is -0.45, how much does the quantity demanded change?

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