Problem Set 4 - Econ. 221 Practice Problem Set 4 (Chapter...

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Econ. 221 Practice Problem Set 4 (Chapter 6), Key 1. For each pair of items below determine which for product would have the higher price elasticity of demand (in absolute value). Explain your answer using the determinants of price elasticity. a. Blood pressure medicine for someone who has high blood pressure and the purchase of Clairol hair coloring product. The demand for the hair product is more price elastic (higher absolute value) than that of blood pressure medicine. The latter is required for survival and has virtually no substitutes while substitutes abound for the former and it is not a necessity. b. A new Ford Escort or a tank of gas for your current car . The demand for a new car is more price elastic than the demand for a tank of gas for your current car. The former is a luxury good while the latter is essential for transportation at present. c. Seiko watch or watches in general. The demand for Seiko watches is more price elastic than demand for watches in general. Narrowly defined markets (such as the Seiko watch market) have more substitutes. 2 a. Use the data below to calculate the income elasticity of demand for X and characterize thegood. Quantities Purchased
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Problem Set 4 - Econ. 221 Practice Problem Set 4 (Chapter...

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