15. A recent report by the U.S. Centers for Disease Control and Prevention (CDC), published in the...
Question:
15. A recent report by the U.S. Centers for Disease Control and Prevention (CDC), published in the CDC’s Morbidity and Mortality Weekly Report, studied the effect of an increase in the price of beer on the incidence of new cases of sexually transmitted disease in young adults. In particular, the researchers analyzed the responsiveness of gonorrhea cases to a taxinduced increase in the price of beer. The report concluded that
“the . . . analysis suggested that a beer tax increase of $0.20 per six-pack could reduce overall gonorrhea rates by 8.9%.” Assume that a six-pack costs $5.90 before the price increase. Use the midpoint method to determine the percent increase in the price of a six-pack, and then calculate the cross-price elasticity of demand between beer and incidence of gonorrhea.
According to your estimate of this cross-price elasticity of demand, are beer and gonorrhea complements or substitutes?
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