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1.) Suppose if the price of a good is $5, the quantity demanded is 100 units; when the price is $7, the quantity demanded is 80 units. Use the midpoint approach to compute the price elasticity of demand. Is demand at this point relatively responsive or relatively unresponsive to price changes?
2.) For this exercise you will need to first build a graph to these specifications: Draw a downward sloping demand curve with vertical intercept (0,16) and horizontal intercept (16,0). Label the price above which the demand is always elastic. Label the portion of the curve at which an increase in price will lead to increased revenue.
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