A retail store sold 1,000 TVs last year in a given city at an average price of $1,500. This year, the store expects to sell 850 TVs at an average price of $1,600.
a. Compute the arc price elasticity of TVs in this city.
b. Based on the price elasticity you computed above, would you advise the store to increase or lower the price of TVs in order to increase its revenue from TV sales?
c. Suppose the store fixes the price of TVs $1,650. At this price, the store sells 800 TVs when the average income of the residents is $35,000 per year and sells 875 TVs when the average income of the residents rises to $38,000 per year. Compute the arc income elasticity of demand and determine whether TVs are income elastic or inelastic.