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Microeconomics

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Moderate

Consumer Comparatives and Elasticity: Good ol' Mom

MICRO-TSGV7O

When a couple of would-be parents cannot have children of their own, there are two options: adoption and finding a birth surrogate. In adoption, the couple finds someone who is having a baby and they adopt the baby from that "birth mother." In birth surrogacy, the couple finds a "birth surrogate" willing to carry a baby for the couple, often using donated genetic material from one or both of couple who will be raising the child.

It is common practice in the United States that, when a couple is planning to adopt a baby and have found a birth mother, they pay the birth mother's expenses for the last few months of birth. These expenses are typically equal to the birth mother's income, whatever that happens to be. Assume for this question that these are the only costs paid by adoptive parents in the process of adoption.

Birth surrogates, on the other hand, are often paid a flat fee to carry a baby for the couple.

You look at some data and notice that in states where likely birth mothers tend to have higher income, there are more birth surrogates.

You estimate how the quantity of surrogate births demanded, in percentage change terms, responds to percentage changes in the average income of birth mothers. What might you label this estimate?

A

Income elasticity of demand for surrogate births

B

Price elasticity of demand for surrogate births

C

Cross-price elasticity of demand for surrogate births relative to the price of adoptions

D

Income elasticity of demand for adoptions

E

Price elasticity of demand for adoptions

F

Cross-price elasticity of demand for adoptions relative to the price of surrogate births.