elastic or perfectly inelastic What would be implied by a positive price elasticity of demand? Explain why the sign (positive or negative) of the cross price elasticity of demand is important Explain why the sign (positive or negative) of the income elasticity of demand is important Economists Dale Heien and Cathy Roheim Wessells found that the price elasticity of demand for fresh milk is −0.63 and the price elasticity of demand for cottage cheese is −1.1 [1] Why you think the elasticity estimates differ? The price elasticity of demand for health care has been estimated to be −0.2 Characterize this demand as price elastic, unit price elastic, or price inelastic The text argues that the greater the importance of an item in consumer budgets, the greater its elasticity Health-care costs account for a relatively large share of household budgets How could the price elasticity of demand for health care be such a small number? Suppose you are able to organize an alliance that includes all farmers They agree to follow the group’s instructions with respect to the quantity of agricultural products they produce What might the group seek to do? Why? Suppose you are the chief executive officer of a firm, and you have been planning to reduce your prices Your marketing manager reports that the price elasticity of demand for your product is −0.65 How will this news affect your plans? Suppose the income elasticity of the demand for beans is −0.8 Interpret this number Transportation economists generally agree that the cross price elasticity of demand for automobile use with respect to the price of bus fares is about Explain what this number means Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 282