Question

5. If the cross-price elasticity of clinic visits with respect to pharmaceutical prices is -0.18 a) By how much will clinic visits change if pharmaceutical prices rise by 5 percent? b) Are pharmaceuticals substitutes for or complements to clinic visits?

Answer 1

Answer

a) By how much will clinic visits change if pharmaceutical prices rise by 5 percent?

the cross-price elasticity of demand =%change in quantity of a good /%change in the price of other good

-0.18=%change in quantity of clinic visits/5

%change in quantity of clinic visits=-0.18*5=-0.9%

clinic visits decrease by -0.9% if pharmaceutical prices rise by 5 percent.

b) Are pharmaceuticals substitutes for or complements to clinic visits?

The cross-price elasticity of demand is negative so the goods are complement goods. As the increase in price of one decreases the quantity of other related goods.