For the following pairs of services, which of the two services would you expect

Question

For the following pairs of services, which of the two services would you expect to be more income elastic? More price elastic? Why? (Your answer should demonstrate your understanding of the concept of elasticity.) Surgical services versus allergist services Heart surgery versus cosmetic surgery Would the opportunity cost of waiting time be higher for higher-income people of lower-income people? Given your answer, for which income group would money price tend to be a smaller portion of the full price?

Explanation / Answer

4.

a.

i.

Surgical service in less income elastic in comparison to allergist service because allergist service is luxury and surgical service is needed to treat the problem. Thus, consumers behave differently to these two services.

Surgical service is less price elastic in comparison to allergist service because in case of allergist service, people will tend to choose alternative treatment if price of allergist service rises. Surgical service is a need that should be fulfilled to cure the issue. Thus, it is less responsive to price.

ii.

Heart Surgery is less income elastic in comparison to cosmetic surgery. Cosmetic surgery is a luxury service that increases with increase in income but hear surgery is a necessity.

Also,

Heart Surgery is less price elastic in nature because it is mandatory to save life. Thus, it is less responsive to price changes. But, cosmetic surgery will be more price sensitive as it may not be mandatory to save life.

b.

Opportunity cost for waiting time will be high for high income group in comparison to low income group because that utilization of waiting time can earn relatively more money to high income group in comparison to low income group. For example, waiting time of 1 hr for a Doctor is more costly than the waiting time of a worker.

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