4. What effect would a rule stating that university students must live in university dormitories have on the price elasticity of demand for dormitory space? What impact might this in turn have on room rates?
7. You are chairperson of a state tax commission responsible for establishing a program to raise new revenue through exercise taxes. Why would elasticity of demand be important to you in determining the products on which the taxes should be levied?
9. Because of a legal settlement over state health care claims, in 1999 the U.S. tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The decline in cigarette sales was estimated at 8 percent. What does this imply for the elasticity of demand for cigarette? Explain.
10. The income elasticities of demand for movies, dental services, and clothing have been estimated to be +3.4, +1, and +.5, respectively. Interpret these coefficients. What does it mean if an income-elasticity coefficient is negative?
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