Chapter 3

1. A study sponsored by the American Medical Association suggests that the absolute value of the own price elasticity for surgical procedures is smaller than that for the own price elasticity for office visits. Explain why this would be expected.

2. Suppose the monthly demand for soda by a consumer is given by Q = 10 – 8P.

a. If the price of soda is $1 per can, how many sodas will the consumer purchase in a typical month?

b. What is the elasticity of demand for soda?

3. The demand function for VCRs has been estimated to be

Q_v = 134 - 1.07P_t + 46P_m - 2.1P_v - 5M,

where Q_v is the quantity of VCRs, P_t is the price of a videocassette, P_m is the price of a movie, P_v is the price of a VCR, and M is income. Based on this information, answer the following questions.

a. Are VCRs normal or inferior goods?

b. Are movies substitutes or complements for VCRs?

c. What additional information is needed to calculate the price elasticity of demand

for VCRs?