4.12 A 10 percent excise tax would cause an approximate 3.5 percent decrease in quantity demanded if other things remain constant. A 50 percent increase in income would cause an approximate 25 percent increase in demand if other things remain constant. 4.13 Water is a necessity in both the short run and long run. In contrast, movies are one form of entertainment. Consumers may persist in their movie-going habits in the short run, but they will find substitutes in the long run.
Compacts are market substitutes for gasoline.
As the price of gas rises, people switch from large gas guzzlers to more fuel efficient small cars. The market reaction is not inconsistent with the technological requirement that increased driving of any car requires more gas. 4.15 Cross-elasticity is useful in determining the scope of the market. Although the manufacture of aluminum cans is a different industry from the making of waxed paper containers, these products along with glass containers, tin cans, and plastic containers may all have relatively high positive cross-elasticities of demand. The relevant market would include competition among all of these products.