1.During the last five years average daily occupancy at Autumn Acres nursing home has slid from 125 to 95 even though Autumn Acres has cut its daily rate from $125 to $115. Do these data suggest that occupancy would have been higher if Autumn Acres had raised its rates? What changes in non-price demand factors might explain this? (There have been no changes in supply. The number of nursing home beds in the area has not changed during this period.)

2.Why is the demand for healthcare products usually inelastic? Why is the demand for an individual firm’s healthcare products usually elastic?

3.If the income elasticity of demand is 0.2, how would the volume of services change if income rose by 10 percent?

4.Your boss has asked you to describe how the demand for an over-the-counter sinus medication would change in the following situations. Assuming the price does not change, forecast whether the sales volume will go up, remain constant, or go down.

The local population increases.

A wet spring leads to a bumper crop of ragweed.

Factory closings lead to a drop in the area’s average income.

A competing product with a different formula is found to be unsafe.

A research study is published showing that the medication causes severe dizziness. 


The price of another sinus medication drops.