quantity are increasing proportionally.

5. Carmakers can pass this cost along to consumers if the demand for these cars is inelastic. If the demand

for these cars is elastic, then the manufacturer must pay for the equipment.

6. If the elasticity is 1.4 at current prices, you would advise the company to lower its price on the product,

since a decrease in price will be offset by the increase in the amount of the drug sold. If the elasticity were

0.6, then you would advise the company to increase its price. Increases in price will offset the decrease in
number of units sold, but increase your total revenue. If elasticity is 1, the total revenue is already

maximized, and you would advise that the company maintain its current price level.

7. The percentage change in quantity supplied as a result of a given percentage change in the price of

gasoline.

8.

In this example, bread is an inferior good because its consumption falls as income rises.
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