A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the ncidence of new cases of STD's. The report concluded that a beer tax increase of $.20 could reduce overall STD ates by 8.9%. Assume that a six pack cost $5.90 before the price increase. Calculate the cross price elasticity petween beer and STD's. What is the sign of this cross-price elasticity? According to your estimate, are beer and STD's compliments or substitutes? Does your answer make sense? Explain.

A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the ncidence of new cases of STD's. The report concluded that a beer tax increase of $.20 could reduce overall STD ates by 8.9%. Assume that a six pack cost $5.90 before the price increase. Calculate the cross price elasticity petween beer and STD's. What is the sign of this cross-price elasticity? According to your estimate, are beer and STD's compliments or substitutes? Does your answer make sense? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the
incidence of new cases of STD's. The report concluded that a beer tax increase of $.20 could reduce overall STD
rates by 8.9%. Assume that a six pack cost $5.90 before the price increase. Calculate the cross price elasticity
between beer and STD's. What is the sign of this cross-price elasticity? According to your estimate, are beer
and STD's compliments or substitutes? Does your answer make sense? Explain.

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