ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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X is an inferior good and is a complement to Y.
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X is an inferior good and is a substitute for Y.
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X is a normal good and is a complement to Y.
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X is a normal good and is a substitute for Y.
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Detailed explanation-1: -If the income elasticity of demand for good X is negative and the cross-price elasticity of demand between good X and good Y is negative, which of the following must be true of Good X? X is a normal good and is a substitute for Y.
Detailed explanation-2: -When the cross-price elasticity of demand for two goods is negative, it is an indication that the goods are complements.
Detailed explanation-3: -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-4: -Inferior goods have a negative income elasticity of demand; as consumers’ income rises, they buy fewer inferior goods.
Detailed explanation-5: -The cross‐price elasticity of demand is given by the formula: If the percentage change in the quantity demanded of good X is greater than the percentage change in the price of good Y, the demand for good X is cross‐price elastic with respect to good Y, or very responsive to changes in the price of good Y.