use the following scenario.You are a consultant and have been employed by Urban General, a large inner-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 St.Elsewhere, a near-by hospital, is +0.35.Answer the following questions.
-Area income increases by 20 percent.
A)Quantity demanded at Urban General does not change.
B)Quantity demanded at Urban General falls by 10.0 percent.
C)Quantity demanded at Urban General rises by 10.0 percent.
D)Quantity demanded at St.Elsewhere rises by 7.0 percent.
E)There is not enough information to tell what happens to quantity demanded at either hospital.

Question

Quizplus · Accepted Answer

With an income elasticity of +0.50, a 20% increase in income would lead to a 10% increase in quantity demanded at Urban General (0.50 x 20 = 10).

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