1. Suppose the demand for sunscreen (X) has been estimated to be ln Qx = 5 - 1.7 ln Px + 3 ln S - 3 ln Ay, where S denotes the average hours of sunshine per day and Ay represents the level of advertising for good Y.

a. What would be the impact on demand of a 5 percent increase in the daily amount of sunshine?

b. What would be the impact of a 10 percent reduction in the amount of advertising toward good Y?

c. What might be good Y in this example?

2. The demand for company X's product is given by Qx = 12 - 3Px + 4Py. Suppose good X sells for $3.00 per unit and good Y sells for $1.50 per unit.

a. Calculate the cross-price elasticity of demand between goods X and Y at the given prices.

b. Are goods X and Y substitutes or complements?

c. What is the own price elasticity of demand at these prices?

d. How would your answers to parts a and c change if the price of X dropped to $2.50 per unit?

3. Your firm's research department has estimated the elasticity of demand for toys to be -0.7. As the manager of a local chain of toy stores, determine the impact of an 8 percent increase in toy prices on your total revenues.