Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 2, Problem 2.6IP
To determine
The lowest inflation rate among surgeries.
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Consider the measurement of prices in the medical sector, where there is rapid innovation.
Consider the case of a medical check-up for pregnant women. Assume that this service is
privately provided. Suppose that a new ultrasound method is introduced. In the first year that
this new method is available, half of doctors offer the new method and half offer the old
method. Pregnant women frequent both doctors. A checkup using the new method costs 10%
more than a check-up using the old one.
1. In percentage terms, how much of a quality increase does the new method represent
compared to the old method?
Now suppose that in addition, in the first year the new method is offered, the price of check-
ups with the new method is 15% higher than the price of check-ups in the previous year (when
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Consider public policy aimed at smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.2.
If a pack of cigarettes currently costs $5 and the government wants to reduce smoking by 10%, it should increase the price by
.
If the government permanently increases the price of cigarettes, the effect on smoking 1 year from now will be than the effect 3 months from now.
Studies also find that teenagers have a higher price elasticity of demand than do adults.
Which of the following statements are consistent with this result? Check all that apply.
Teenagers do not have as much income as adults, so they are more price sensitive.
It is legal for adults to consume alcohol, so many choose to spend their money on that good rather than cigarettes.
Adults are more likely to be addicted to cigarettes.
Consider public policy aimed at smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.5.
If a pack of cigarettes currently costs $5 and the government wants to reduce smoking by 30%, it should increase the price by
.
If the government permanently increases the price of cigarettes, the effect on smoking 1 year from now will be than the effect 5 years from now.
Studies also find that teenagers have a higher price elasticity of demand than do adults.
Which of the following statements are consistent with this result? Check all that apply.
It is legal for adults to consume alcohol, so many choose to spend their money on that good rather than cigarettes.
Adults are more likely to be addicted to cigarettes.
Teenagers do not have as much income as adults, so they are more price sensitive.
Chapter 2 Solutions
Managerial Economics: A Problem Solving Approach
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