(1) (T,F,U) When the inverse demand curve takes the form p-1/r (where p is price
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(1) (T,F,U) When the inverse demand curve takes the form p-1/r (where p is price and r is quantity demanded), then the price elasticity of demand will fall with an low prices the inverse demand curve is almost flat, and at very high prices is al (2) (T,F,U) A classic study of the cigarette industry notes that "In 1918, for example, Lucky Strike cigarettes were sold for a short time at a higher retail price than Camel or Chesterfield and rapidly lost half its business" (Tennant 1961) However, since a USDA study using the same data estimated that during the same period the price elasticity of cigarette demand is between 0.3 and 0.4, at least one of these studies must be mistaken. (3) (T,F,U) In a now-infamous 1991 memo, Larry Summers (then a vice president of the World Bank) argued that "the World Bank [should] be encouraging MORE igration of the dirty industries to the LDCs Less Developed Countries". One of the reasons he gave for this claim was that "demand for a clean environment for aesthetic and health reasons is likely to have [a very high income elasticity." If Summers' supposition is correct, then we should expect for wealthier countries to have cleaner environments, other things equal.Explanation / Answer
1. True
2 Undefined, Need more data to conclude this . As it depens on price hike. so If we assume Price Elasticity was 0.4 then demand would had fallen more than 50 % if price was increased by 125 %. So to conclude this we need how much price was increased.
3. High Income Elasticity means, Little increase in Income, More increase in Demand. and vice versa. So if we assume Larry's statment is right ...then YES we expect wealthier countries to have cleaner environments.
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