Question 1:

• Explain why the demand for the good or service provided by a firm is elastic or inelastic. How does the elastic or inelastic demand influence pricing decisions by the firm to maximize profit? What are the impacts of elastic demand and inelastic demand on total revenue?
• Provide examples on how the availability of close substitutes affects price elasticity of demand for a good or service.
• Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

Question 2:

• What are the roles of government in the market economy? Based the current economic conditions, to what extent should the government intervene in the market economy?
• What are the justifications given in favor of more government involvement in the market economy? What are the reasons given in favor of less government involvement in the market economy?
• Provide an example to discuss how special interests can succeed in perpetuating policies that are opposed by the majority of voters because the costs of organizing and motivating groups to take political action increase with group's size.