(a) According to the Houthakker and Taylor, the price elasticity of shoes in the United States is 0.7, and the income elasticity is 0.9.
i. Would you suggest that the Brown Shoe Company cut its prices in order to increase its revenue?
ii. What would be expected to happen to the total quantity of shoes sold in the United States if incomes rise by 10 percent?
(b) Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a packet of cigarettes currently costs $8 and the government wants to reduce smoking by 20%, by how much should it increase the price?