Question

QUESTION 4 You are employed as an economic consultant to the regional planning office of a large metropolitan area. A recession has caused the hospitals in the city to consider raising prices. You know that the price elasticity of demand for hospital services equals -0.25, and the income elasticity of demand equals +0.45. Given this information, tell how the quantity demanded for services will change if: The hospitals increase the price for services by 2 percent QUESTION 5 You are employed as an economic consultant to the regional planning office of a large metropolitan area. A recession has caused the hospitals in the city to consider raising prices. You know that the price elasticity of demand for hospital services equals -0.25, and the income elasticity of demand equals +0.45. Given this information, tell how the quantity demanded for services will change if: Average real income decreases by 10 percent.

Answer 1

Answer 4 - Perc change in price pf services = 2%

Elasticity of services = -0.25

% change in quantity = -0.25 * 2

= (-0.5) %

Since the given elasticity of demand for services is lesser elastic , there will only be 0.5 % change in demand ( decrease) as a result of 2 % increase in price.

Answer 5 - % decrease in real income = 10 %

Income elasticity = 0.45

Change in demand = 0.45 * (-10)

= -4.5 %

This means that as a result of 10 % decrease in income , the demand will decrease by 4.5 %