A book store opens across the street from the University Book Store (UBS). The new store carries the same textbooks but offers a price 20 percent lower than UBS. If the cross-price elasticity is estimated to be 1.5. and UBS does not respond to its competition, how much of its sales is it going to lose? 15. A local supermarket lowers the price of its vanilla ice cream from $3.50 per half gallon to $3. Vanilla ice cream (unit) sales increase by 20 percent. The store manager notices that the (unit) sales of chocolate syrup increase by 10 percent.
a. What is the price elasticity of vanilla ice cream?
b. Why have the sales of chocolate syrup increased, and how would you measure the effect?
c. Overall, do you think that the new pricing policy was beneficial for the supermarket?