When the price of compact disc players decreases, the demand for ...

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When the price of compact disc players decreases, the demand for compact discs rises while the demand for cassette tapes decreases. What does this imply about the relationship between compact disc players, compact discs, and cassette tapes?
 
  What will be an ideal response?

Question 2

Suppose you had to find the effect of seatbelt rules on road accident fatalities. Would you choose to run a randomized experiment or would it make sense to use natural experiments here? Explain.
 
  What will be an ideal response?

[Cnarkel]

Answer to Question 1

Compact disc players and compact discs must be complements. Compact disc players and cassette tapes must be substitutes.

Answer to Question 2

It would be difficult (and, in many people's view, unethical) to conduct a randomized experiment. Instead, the study should use a natural experiment. You can study data on the causes of road accident fatalities in cities where seatbelt rules were not enforced, or in cities that have recently adopted new, more stringent seat belt laws. Controlling for other factors like an increase in the number of cars, etc., you can then look at similar data when seatbelt rules have been implemented.

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Excellent

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