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Econ 202 Spring 2010 Problem Set 2-1

Econ 202 Spring 2010 Problem Set 2-1 - elasticity...

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Econ 202 Spring 2010 Answer Key Problem Set 2 ( due Feb 18 th ) 1. a. What should be the sign of income elasticity of demand for “dentures”? Explain in one sentence. It would be negative because even though income decreases there is no change in quantity demanded because dentures are inelastic b. Consider Lasik surgery and prescription eyeglasses. When the Lasik surgery option became available, what do you think happened to the price elasticity of demand for eyeglasses? If Lasik surgery prices increase or decrease significantly explain how the income elasticity of demand for prescription eyeglasses will change. It became much more elastic with the invention of a substitute good. A price increase would result in demand for lasik becoming more elastic and a decrease would make it less elastic. 2. Explain in one sentence whether the following are normal, inferior, luxury, and necessity; also suggest an
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Unformatted text preview: elasticity supporting your answer. a. Canned spaghetti: it is an infirior good because it is a less expensive subsitute for food. b. Vacuum cleaners: luxnormal good because elasticity is directly affected by market. c. Used books: infirior because it is a subsiitute for new books. d. Computer software: normal elasticity is dependent on market or could be luxury depending on what it does. 3. Which elasticities are smaller: short-run or long-run? Why? Short run because prices of good decrease more drastically over time. Short-run elasticities are generally smaller (in absolute value) than long-run elasticities because, over a longer time horizon, consumers have greater ability to adjust their behavior and find substitutes for a good. 4. Ch 4 Question 3 5. Ch 4 Question 4 6. Ch 4 Question 11 7. Ch 5 Question 3 8. Ch 5 Question 6 9. Ch 5 Question 10...
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