The income elasticity of demand for hardback books

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Suppose that the income elasticity of demand for hardback books is 2.5, that household incomes are rising at 2% a year., and that 2 million are initially being sold per year. The own price elasticity of demand is -0.5 and the cross-price elasticity of demand with paperbacks is 5.0.

a. If the supply elasticity of hardbacks is infinite, what are the expected sales of hardback books in a year?

b. If the supply elasticity of hardbacks is zero, what are the expected sales of hardback books in a year?

c. In the situation described in (b), by how much are expenditures on hardbacks changing each year?

d. Suppose paperback prices are rising 2% a year. In the situation in (a), what are the expected sales of hardbacks in one year?

Explanations to each part would be greatly appreciated.

Reference no: EM131007187

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