# solution

Use the formulas for elasticity to answer the following questions.

a. When Maribaâ€™s income rises by 10 percent, her expenditures on carrots rise 12 percent. What is Maribaâ€™s income elasticity of demand for carrots? Are carrots, for her, a normal or an inferior good?

b. Suppose that the price elasticity of demand for milk is 0.6. If a grocer raises the price of milk by 15 percent, by what percentage will milk sales decrease as a result of the price increase? Will the grocerâ€™s revenue from milk sales go up or down?

c. Suppose that the price elasticity of supply for paper is 1.5. You notice that the quantity of paper supplied decreases by 6 percent as the result of a change in the price of paper. Determine by what percentage the price of paper must have declined.

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