70

$10

80

$11

88

$12

95

$13

100

TABLE 5.6

3. Why is the demand curve with constant unitary elasticity concave?

4. Why is the supply curve with constant unitary elasticity a straight line?

5. The federal government decides to require that automobile manufacturers install new anti-pollution

equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this cost

along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers?

6. Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes

bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this

drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise

the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were

0.6? What if it were 1? Explain your answer.
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