Problem Set 3

Problem Set 3 - Chapter 6-Elasticity This problem set is...

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Chapter 6-Elasticity This problem set is due on Wednesday, Sep. 23. Please turn it in before we start the class. Late submissions will not be accepted. 1. Circle the good in the following pairs that is likely to be more price elastic. Explain your answer. a. Diet caffeine-free Pepsi Soda b. Table salt Filet mignon c. Laptop computer Schoolbag 2. Match the following words with their definitions: a. Luxury ____1. Cross price elasticity of demand is negative. b. Complement ____2. Income elasticity of demand is negative. c. Necessity ____3. Income elasticity greater than one. d. Substitute ____4. Income elasticity less than one. e. Inferior good ____5. Income elasticity of demand is positive. f. Normal good ____6. Cross-price elasticity of demand is positive. 3. It has been estimated that the price elasticity for cigarettes is 0.164. Assuming there are currently no taxes on cigarettes, to reduce cigarette purchases 5%, government would need to tax cigarettes enough to: a. raise the price by 0.82%.

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This note was uploaded on 11/04/2009 for the course ECON 201 taught by Professor Williams during the Fall '08 term at UVA.

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Problem Set 3 - Chapter 6-Elasticity This problem set is...

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