Suppose that the income elasticity of demand for hardback books is 2.5, that household incomes are rising at 2% a year., and that 2 million are initially being sold per year. The own price elasticity of demand is -0.5 and the cross-price elasticity of demand with paperbacks is 5.0.
a. If the supply elasticity of hardbacks is infinite, what are the expected sales of hardback books in a year?
b. If the supply elasticity of hardbacks is zero, what are the expected sales of hardback books in a year?
c. In the situation described in (b), by how much are expenditures on hardbacks changing each year?
d. Suppose paperback prices are rising 2% a year. In the situation in (a), what are the expected sales of hardbacks in one year?
Explanations to each part would be greatly appreciated.