Q1. Cross-Price Elasticity. B.B. Lean is a catalog retailer of a wide variety of sporting goods and recreational products. Although the market response to the company's spring catalog was generally good, sales of B.B. Lean's $140 deluxe garment bag declined from 10,000 to 4,800 units. During this period, a competitor offered a whopping $52 off their regular $137 price on deluxe garment bags. Calculate the cross price elasticity.
Q2. 1. Consider yourself. Is your individual labor supply curve upward sloping, downward sloping, or backward-bending?
2. Compare and contrast the substitution effect and the income effect in the work hours decisions of individuals.
3. What happens to the work hours of an individual if her wages increase and the income effect dominates?
4. Consider a product market for a normal good. Suppose consumers' income increases. Explain what will happen to labor demand for firms in that market.