quanda05 - Chapter 5 1. For each pair of goods listed...

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Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 5 1. For each pair of goods listed below, which good would you expect to have the more elastic demand? Why? a. cigarettes; a trip to Florida Answer: a trip to Florida because it is a luxury while cigarettes are a necessity (to smokers) b. an AIDS vaccine over the next month; an AIDS vaccine over the next five years Answer: An AIDS vaccine over the next five years because there are likely to be more substitutes (alternative medications) developed over this time period and consumers’ behaviour may be modified over longer time periods. c. beer; Budweiser Answer: Budweiser because it is a more narrowly defined market than beer so there are more substitutes for Budweiser than for beer d. insulin; aspirin Answer: aspirin because there are many substitutes for aspirin but few substitutes for insulin 2. Suppose the Daily News estimates that if it raises the price of its newspaper from €1.00 to €1.50 then the number of subscribers will fall from 50,000 to 40,000. a. What is the price elasticity of demand for the Daily Newspaper when elasticity is calculated using the midpoint method? Answer:
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This note was uploaded on 07/06/2009 for the course BUS BAM303 taught by Professor Na during the Spring '09 term at 東京大学.

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quanda05 - Chapter 5 1. For each pair of goods listed...

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