1. A major cereal manufacturer decides to lower prices from $3.60 to $3.00 per 15-ounce box. If quantity demanded increases by 18%, what is the price elasticity of demand? Is this an example of elastic or inelastic demand?
2. To increase state tax revenues, the Governor of California has proposed an additional sales tax on all automobiles deemed to be exotic in nature; that is, two door coupes and convertibles with a dealer sticker price of at least $100,000. Comment on the validity of this proposed tax.
3. Illustrate the each of the following in demand and supply diagrams:
a. An increase in demand, all things equal
b. A decrease in demand, all things equal
c. An increase in supply, all things equal
d. A decrease in supply, all things equal