ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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negative for complementary goods.
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unitary for inferior goods.
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negative for substitute goods.
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positive for inferior goods.
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Detailed explanation-1: -A negative cross elasticity of demand indicates that the demand for good A will decrease as the price of B goes up. This suggests that A and B are complementary goods, such as a printer and printer toner. If the price of the printer goes up, demand for it will drop.
Detailed explanation-2: -We determine whether goods are complements or substitutes based on cross price elasticity-if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.
Detailed explanation-3: -Cross-Price Elasticity of Complementary Products If the price of one product increases, the demand for the complementary product decreases. To consumers, the increased joint cost will force them to buy less.
Detailed explanation-4: -This means that an increase in price leads to a fall in quantity demanded or the demand curve is downward sloping. We cannot tell how responsive the quantity demanded is from this, only that price and quantity demanded are inversely related.
Detailed explanation-5: -Inferior goods have a negative income elasticity of demand; as consumers’ income rises, they buy fewer inferior goods.