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Author Question: The cross-price elasticity between natural gas and heating oil is estimated to be 2.3 . The ... (Read 25 times)

student77

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on: Jun 29, 2018
The cross-price elasticity between natural gas and heating oil is estimated to be 2.3 . The cross-price elasticity between natural gas and electricity is estimated to be -0.8 .
 
  What is the relationship between natural gas and heating oil? What is the relationship between natural gas and electricity? Explain.

Question 2

A rule that specifies the highest price that a regulated firm is permitted to set is called
 
  A) rate of return regulation.
  B) price cap regulation.
  C) maximum price regulation.
  D) average/marginal cost pricing.


bdobbins

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Because the cross-price elasticity is positive, natural gas and heating oil are substitutes. As the price of one goes up, the demand for the other increases. On the other hand, natural gas and electricity are complements because the cross-price elasticity is negative. When the price of one goes up, the demand for the other falls.

Answer to Question 2

B


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