Question

1) The income elasticity of demand for Good Z is –0.2, while the cross-price elasticity of demand between Good Z and Good Y is 1.63. Which of the following statements is correct regarding Good Z?

Group of answer choices

Good Z is a inferior good, and Goods Z and Y are complements.

Good Z is an inferior good, and Goods Z and Y are substitutes.

Good Z is a normal good, and Goods Z and Y are complements.

Good Z is a normal good, and Goods Z and Y are substitutes.

2)

The income elasticity of demand for appliances is 2.1. Assume that consumer income decreases by 3%. Based on this information, what change can be expected?

Select Group of answer choices

None of the answers listed is correct.

Quantity demanded will decrease by 0.7%.

Quantity demanded will decrease by 1.43%.

Quantity demanded will increase by 6.3%.

Quantity demanded will increase by 0.9%.

Quantity demanded will decrease by 0.9%.

3) Good X is an inferior good. Assume there is an increase in income and there is an increase in the number of firms producing good X. Which of the following statements is correct?

Group of answer choices

The equilibrium price will definitely increase.

The equilibrium price will definitely decrease.

The equilibrium quantity will definitely increase.

The equilibrium quantity will definitely decrease.

Answer 1

1) Since income elasticity of demand is negative for good Z this represents that as income increases quantity demanded decreases or vice versa Hence, Good Z is Inferior, and as cross price elasticity is positive which means as price of one increases demand for other too increases and vice versa hence, good Z and Y are substitute Hence, second statement is correct

​​​​​​​​​​​2) Income elasticity of demand=% change in quantity demanded/% change in income gives % change in quantity demanded=Income elasticity of demand*% change in Consumer income=2.1*-3=-6.3% so demand decreases by 6.3% Hence, None of the option is correct

3) Since X is Inferior good, with increase in income demand will fall at the same time increase in supply both combined will definitely bring the equilibrium prices down Hence, statement 2 equilibrium price will definitely decrease is correct