Question: Microsoft’s Vista Operating System was released in early 2007. In February of 2008, Microsoft cut retail prices of Vista by as little as 3% in developed countries and as much as 50% for some underdeveloped countries. The article, which appeared in Computerworld in 2008, noted that "Microsoft now has a year of sales data, so they were able to calculate elasticity, which told them they needed to drop the price…" You may assume that Microsoft is a profit-maximizer.

1. Based on the 2008 article, how would you classify the responsiveness of consumers/categorize the demand for Vista in 2008? What evidence supports this category?
2. Identify two factors influencing consumer responsiveness, as they relate to Vista, which are consistent with your categorization in part a.
3. Why did Microsoft drop prices by more in underdeveloped countries?
4. If quantity demanded increased by 60% in underdeveloped countries as a result of price cuts, calculate price elasticity of demand.
5. Would you support a government proposal to tax purchases of the Vista Operating System in 2008 in order to generate government revenue? Why or why not?

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