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

problem 2: The demand for the company X’s product is given by Qx = 12 – 3Px + 4Py. Assume good X sells for $3.00 per unit and good Y sells for $1.50 per unit.

1. Compute the cross-price elasticity of the demand between goods X and Y at the given prices.

2. Are goods X and Y complements or substitutes?

3. What is own price elasticity of demand at these prices?

4. How would your answers to parts a and c alter if price of X dropped to $2.50 per unit?