Q14 - Which of the following goods is likely to have the most inelastic demand ?
1. Restaurant meals.
2. Air travel.
3. Movies.
4. Cigarettes.
Q15 - Pears and plums are substitutes. When the price of pears falls, and a technological advance in plums production occurs at the same time
1. The equilibrium price of plums rises and the equilibrium quantity of plums falls.
2. The equilibrium price of plums rises and the equilibrium quantity of plums rises.
3. The equilibrium price of plums rises and the equilibrium quantity of plums might rise or fall.
4. The equilibrium price of plums falls and the equilibrium quantity of plums might rise or fall.
Solution:
Q14 - 4. Cigarettes.
Explanation- Necessary goods are the generally inelastic in nature, people will pay any price to obtain that product, even if price is very high. From the following goods Cigarettes have the most inelastic demand. People who addicted to Cigarette, he will pay any price for that.
Q15 - 4. The equilibrium price of plums falls and the equilibrium quantity of plums might rise or fall.
Explanation- For substitute goods, as the price of pears falls, the demand for the plums decreases. As demand for the plums decreases the equilibrium price of plums will falls. But as a technological advance in plums production occurs, the equilibrium quantity of plums might rise or fall. If the technology works well then quantity of plums might rise, otherwise quantity of plums will fall.
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