II. Elasticity a. When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like? b. Suppose the price of gasoline in July 2019 averaged $2.35 a gallon and 15 million gallons a day were sold. In October 2019, the price averaged $3.05 a gallon and 14 million gallons were sold. If the demand for gasoline did not shift between these two months, use the midpoint formula to calculate the price elasticity of demand. Indicate whether demand was elastic or inelastic. c. A study of the effects of the minimum wage on employment of low-skilled workers estimated the price elasticity of demand for low-skilled workers is -0.75. Suppose that the government is considering raising the minimum wage from $7.25 per hour to $7.75 per hour. Based on this information, calculate the percentage change in the employment of low skilled workers. Use the midpoint formula. d. Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good. Calculate the income elasticity of demand for the good and determine what type of good it is. e. When the price of Starbucks coffee increased by 8 percent, the quantity demanded of Peet's coffee increased by 10 percent. Calculate the cross-price elasticity of demand between Starbucks coffee and Peet's coffee. What is the relationship between the two products?