How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?
What will be an ideal response?
The cross elasticity of demand is the responsiveness of demand for one good to a percentage change in the price of another good. Instead of looking at the effect of the change in the good itself, we look at the effect on the amount demanded of another good. If the goods are substitutes, the cross elasticity of demand is positive, but the cross price elasticity of demand is negative when they are complements. A high positive cross elasticity of demand means the goods are close substitutes, which implies the price elasticity of demand will be relatively elastic because elasticity is a function of the closeness of substitutes.
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a. The price of a used automobile b. The price of a dinner in a U.S. restaurant c. The price of a U.S.-manufactured stereo system d. The price of an IBM computer e. The price of a new Ford automobile
Average productivity can be measured as total output divided by total units of labor
a. True b. False Indicate whether the statement is true or false
Government intervention can be productive and efficiency enhancing:
A. because the government always acts with altruistic motives. B. in markets for public goods and common resources. C. whenever it regulates a market. D. except in markets for public goods.
If the production of a good generates external ________, the government could increase efficiency by ________ production of the good.
A. benefits; taxing B. costs; subsidizing C. costs; increasing D. benefits; subsidizing