n a study of the demand for automobiles in Canada, economists Blomqvist and Hassel distinguished between large and small cars and estimated the price and cross- price elasticities as well as the effects of the price of gasoline on the demands for mall and large cars. Their results were as follows: 1. 0. . New large cars New small cars Own price elasticity 1.26 2.30 Cross price elasticity 0.86 1.73 Elasticity with respect to gasoline price -0.63 0.18 Source: A.G. Blomqvist and W. Hassel, “Small Cars, Large Cars, and the Price of Gasoline," Canadian Journal of Economics, August 1978, 11(3), 470-489. Note: The cross-price elasticities show that the demand for new small cars is more responsive to changes in the price of new large cars than the demand for new large cars is to changes in the price of new small cars. Do the cross-price elasticities have the expected sign? Briefly explain. If the price of new small cars went up by, say, 5 percent, by what percentage would new small car purchases change? {Note: In your answer to this and all of the remaining parts of this question, please indicate whether the change is an increase or a decrease.} If the price of gasoline went up by, say, 5 percent, by what percentage would new large car purchases change?
n a study of the demand for automobiles in Canada, economists Blomqvist and Hassel distinguished between large and small cars and estimated the price and cross- price elasticities as well as the effects of the price of gasoline on the demands for mall and large cars. Their results were as follows: 1. 0. . New large cars New small cars Own price elasticity 1.26 2.30 Cross price elasticity 0.86 1.73 Elasticity with respect to gasoline price -0.63 0.18 Source: A.G. Blomqvist and W. Hassel, “Small Cars, Large Cars, and the Price of Gasoline," Canadian Journal of Economics, August 1978, 11(3), 470-489. Note: The cross-price elasticities show that the demand for new small cars is more responsive to changes in the price of new large cars than the demand for new large cars is to changes in the price of new small cars. Do the cross-price elasticities have the expected sign? Briefly explain. If the price of new small cars went up by, say, 5 percent, by what percentage would new small car purchases change? {Note: In your answer to this and all of the remaining parts of this question, please indicate whether the change is an increase or a decrease.} If the price of gasoline went up by, say, 5 percent, by what percentage would new large car purchases change?
Chapter20: Elasticity: Demand And Supply
Section: Chapter Questions
Problem 6E
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