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A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the incidence of new cases of STD’s.   The report concluded that a beer tax increase of $.20 could reduce overall STD rates by 8.9%. Assume that a six pack cost $5.90 before the price increase.   Calculate the cross price elasticity between beer and STD’s. What is the sign of this cross-price elasticity? According to your estimate, are beer and STD’s compliments or substitutes? Does your answer make sense? Explain.

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  • Category:- Business Economics
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