You are a consultant and have been employed by a large inner-city hospital called City Hospital to estimate the demand for its services.Your research indicates that the income elasticity of demand for the target market is +0.50;the price elasticity of demand is -0.15;and the cross-price elasticity of demand with respect to the price of services at Rural Hospital,a near-by hospital,is +0.35.Answer the following questions.
The price of services at Rural Hospital falls by 10%.What happens to the quantity of services demanded at City Hospital?

Question

Quizplus · Accepted Answer

The elasticity measures the change in quantity for a 1% change in price.In this case,we need the cross-price elasticity of +0.35,which is interpreted as a 1% increase in the price at Rural Hospital,which will lead to a .35% increase in quantity at City Hospital.

You Are a Consultant and Have Been Employed by a Large