Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5. Based on this information, predict what happens when Amazon.com lowers its DVD prices by 10 percent.
A) The quantity of DVDs demanded on Amazon.com will decrease by 35 percent.
B) The quantity of DVDs demanded on Buy.com will decrease by 35 percent.
C) The quantity of DVDs demanded on Amazon.com will increase by 35 percent.
D) The quantity of DVDs demanded on Buy.com will increase by 35 percent.
Question 2
In cities with rent controls, the actual rents paid can be higher than the legal maximum. One explanation for this is
A) rent control laws are so complicated that landlords and tenants may not be aware of what the legal price is.
B) landlords are allowed to charge more than the legal maximum on some apartments so long as they charge less on others.
C) the legal penalty landlords face for charging more than the legal maximum rent is less than the revenue earned by charging their tenants more than the maximum rent.
D) because there is a shortage of apartments, tenants often are willing to pay rents higher than the law allows.
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