Question

The own-price elasticity of demand for hospital services in the area equals –0.25, the income elasticity...

The own-price elasticity of demand for hospital services in the area equals –0.25, the income elasticity of demand equals 0.45, the cross-price elasticity demand for hospital services with respect to the price of nursing home services equals –0.1, and the elasticity of travel time equals –0.37. Use this information to answer the following question.

Hospital services and nursing home services are substitutes.

True or false?

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Answer #1

Ans. False

Cross - price elasticity of demand for hospital services with respect to the price of nursing home services equals -0.1 that is < 0, which means that hospital services and nursing home services are complements.when prices of nursing home services increases, demand for hospital services decreases and when price of nursing home services decreases, demand for hospital services increases that means which shows the negative relationship between the price of nursing home services and demand for hospital services and both services will use jointly.

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