A study by B.B. Gibson estimated the price and income elasticities of demand for six types of public goods for the U.S. economy. The estimates are given in the following table. Public Goods Aid to needy people Pollution Control Colleges and Universities Elementary School Education Parks and Recreational Areas Highway Construction and Maintenance Price Elasticity -0.83 -0.99 -0.87 -1.16 -1.02 -1.09 Income Elasticity 0.26 0.77 0.92 1.14 1.06 0.99 (a) Do these public goods confirm to the law of demand? (5) (b) For which public goods is the demand price elastic? (5) Page 2 of 3 (c) What would the impact on elementary school education and College and University education of a 20 percent increase in income, keeping other things constant? (5) (d) If the cost of pollution control came down by 10 percent along with a simultaneous increase in income of 20 percent, what would be the change in demand for pollution control? (5)
A study by B.B. Gibson estimated the price and income elasticities of demand for six types of public goods for the U.S. economy. The estimates are given in the following table. Public Goods Aid to needy people Pollution Control Colleges and Universities Elementary School Education Parks and Recreational Areas Highway Construction and Maintenance Price Elasticity -0.83 -0.99 -0.87 -1.16 -1.02 -1.09 Income Elasticity 0.26 0.77 0.92 1.14 1.06 0.99 (a) Do these public goods confirm to the law of demand? (5) (b) For which public goods is the demand price elastic? (5) Page 2 of 3 (c) What would the impact on elementary school education and College and University education of a 20 percent increase in income, keeping other things constant? (5) (d) If the cost of pollution control came down by 10 percent along with a simultaneous increase in income of 20 percent, what would be the change in demand for pollution control? (5)
