homework 2 - JennyKow September18,2010 ECON2023170...

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Jenny Kow September 18, 2010 ECON 2023-170 Homework #2 Chapter 6: page 132-133 (5, 6, 7, 11, 16) 5. The major determinants of price elasticity of demand are substitutability, proportion of  income, luxuries versus necessities, and time. Bottled water is elastic. Toothpaste is  inelastic. Crest toothpaste is elastic. Ketchup is elastic. Diamond bracelet is elastic.  Microsoft windows operating system is elastic. 6. The effect of a rule stating that university students must live in university dormitories is  that it would cause some people to leave the university because they do not have the  luxury to live in the dormitories. Although, if the students must live there, the room rate  would decrease in price because quantity demanded is at the maximum amount of  students for it is every student in the university. 7. People do not want forges or fraud, they want the real thing. To have the real thing is a  luxury. The original is so expensive because there is only one supply of it and yet many  people want to buy it; which causes the price to increase. 11. Beer and marijuana are complementary goods. The cross elasticity of demand between  the two products is negative. The logic behind this relationship is that if product x price  increases which causes the consumption of product y to reduce indicates that the  products will go together. For if they are together and one price goes up, you buy less of  each product.
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