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Problem: Use what you know about price elasticity of demand, income elasticity of demand, cross price elasticity of demand, and elasticity of supply to answer the following questions.
Required:
Question 1: When bottlers increased the price of canned soda from vending machines by 15%, sales dropped by 25%. Calculate the price elasticity of demand for canned soda.
Question 2: At the same time as the price increase for soda, sales of potato chips dropped by 20% while sales of bottled water increased by 15%. Assume the price of chips and water did not change. Calculate the appropriate cross price elasticities.
Question 3: Given your answer in part A, what do we expect to happen to the soda bottler's total revenue after the price increase? Explain your answer.
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