Part I

Use the following information to answer the questions below.

Observation Price Quantity
A $4.00 18
B $6.00 10


  1. Calculate a price elasticity of demand.  You must show all your work to earn credit.
  2. Given the elasticity of demand, a 10% increase in price will cause quantity demanded to fall by what percentage?  Explain your answer.
  3. Is this demand elastic or inelastic?  Explain your answer.


Part II

Walmart advertises that it has rolled back prices. If Walmart is rolling back prices to raise revenues, should it roll back prices on products that have a price elasticity of demand that is elastic or inelastic.  Explain your answer.
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