1. If the price for some good increases by 10% and the quantity demanded falls by 5%, (a) what is the price elasticity of demand, and (b) is this elastic or inelastic?

2. Last year the US low-cost-carrier Spirit Airlines entered the Dallas-Chicago market. The average ticket price for all airlines servicing the route fell from $200 to $180. After Spirit's entry, the number of passengers increased from 700 to 800 per day (these number are hypothetical, but reasonable). Calculate the price elasticity of demand between these two points. Show the computation.

3. An airline consulting firm as determined that the income elasticity for leisure air travel in China is 1.5. If incomes increase by 5% next year, which of following statements is true about the number of leisure passenger for next year? Passengers will:

a. Increase by 7.5%

b. Decrease by 5%

c. Increase by 5%

d. Increase by 1.5%

4. For each of the following pairs of goods, highlight the one that has the higher price elasticity of demand:

a. Airline travel in the short run or long run

b. Television set or Sony television sets

c. Cars or Ford

5. The state operates a toll road which currently charges $1.00 per car with 100,000 cars using the road daily. The state wishes to raise an additional $10,000 per day for road maintenance. A newly hired financial analyst proposes raising the toll to $1.10 per car. Analyze the analyst's recommendation.

6. The state operates a toll road which currently charges $1.00 per car with 100,000 cars using the road daily. The state wishes to raise an additional $10,000 per day for road maintenance. A newly hired financial analyst proposes raising the toll to $1.10 per car. Analyze the analyst's recommendation.