economics(micro)

hi ppl !

i have an assinment im stuck on, this particular question i cant do so if anyone can help plzzz do

Q: in response to increasing thefts by drug addicts, the government passes legislation increasing both the penalty and probability of punishment for suppliers of illegal drugs. what would you predict would happen to the rate of property crime committed by drug addicts if the price elasricity of demand for illegal frugs is -0.01 ? explain your answer

b) suppose that your firm was accused of illgal conspiring with other sellers to act as a monopolist. in searching for an expert witness, you discover one economist who has calculated the cross elasticity of demand for your industry's prodcut to be +0.43, while another econmist has calculated +2.05. which economist would you hire to testify on behalf of your firm ? explain your answer

c) why would a firm wish to have knowledge concerning the income elasticity of demand for its products ?

thanx in advance ppl !!


The government legislation has the effect of raising the supply curve for drugs. (At any given level, suppliers will want more money to cover the increased penalties for dealing). The demand for drugs is extremely inelastic (practically vertical demand curve). So, from the legislation, price goes up, quantity doesnt change, ergo, money spent by addicts goes up.

b) a low cross-price elasticity means a product does not have good substitutes. A high (positive) cross-price elasticity means a product has good substitutes. Regardless, of the actual elasticity, I would want to argue that monopoly power in infeasible because my good is easily substituted for something else.

c) plenty of reasons for knowing income elasticities. For example, should the firm open a shop in a sparcely populated but high-income part of a city?

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