ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Good X has a perfect price elasticity of demand.
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Good X has a perfect price inelasticity of demand.
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Good Y has a perfect price elasticity of demand
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Good Y has a perfect price inelasticity of demand.
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Detailed explanation-1: -The correct answer is: demand for good X will increase. For substitute goods, the cross-price elasticity of demand is positive.
Detailed explanation-2: -X and Y being substitute goods, if the price of Y increases, then it will reduce the demand for Y and people will switch to X, which will raise the demand for X. Thus, the demand curve will shift from D1D1 to D2D2 . At the existing price P1, there will be an excess demand.
Detailed explanation-3: -In case of complementary goods, a rise in price of Good X causes a rise in demand for Good Y.
Detailed explanation-4: -Solution : (i) The two goods are complementary goods since a fall in price of X leads to a rise in demand of Y or there is negative relation between price of one good and the demand for another.