question 1

Question 1 (6 Marks) Part a) (3 mark) Suppose that when the price of salt is $1 per kg, buyers would purchase 20kg per year. But when the price falls to $0.9, the quantity demanded rises to 21kg per year. i) What is the price elasticity of demand for salt at the original price? ii) How would you interpret this demand elasticity? Part b) (3 marks) Suppose that when the price of a golf club membership is $500 per year, 1,000 buyers want to purchase the membership per year. But when the price falls to $495, the quantity demanded rises to 1,200 per year. i) Calculate the price elasticity of demand for the membership at the original price. ii) Is the demand for membership elastic or inelastic with respect to price? Explain your