Question

1. The price elasticity of demand for gas is -0.4 in the short run. Which is most likely the price elasticity of demand for gas in the long run?
   1. -0.2
   2. 0
   3. -0.4
   4. -0.9

2. The income elasticity of demand for Organic Fruit is 1.4. Which of the following is an appropriate interpretation of this elasticity:
   1. Higher income households buy more organic fruit and organic fruit is a normal good.
   2. Higher income households buy more organic fruit and organic fruit is an inferior good.
   3. Lower income households buy more organic fruit and organic fruit is a normal good.
   4. Lower income households buy more organic fruit and organic fruit is an inferior goo

3. The cross-price elasticity of demand for Organic fruit with respect to the price of non-organic fruit is 1.4. Which of the following is an appropriate interpretation of the relationship between organic fruit and non-organic fruit?
   1. The two goods are complements in consumption and consumers are not sensitive to prices
   2. The two goods are complements in consumption and consumers are sensitive to prices
   3. The two goods are substitutes in consumption and consumers are not sensitive to prices
   4. The two goods are substitutes in consumption and consumers are sensitive to prices

Answer 1

c. -0.4

In long run also, the price elasticity of gas will remain same.

a. Higher income households buy more organic fruit and organic fruit is a normal good.

Positive sign of income elasticity shows positive relation between quantity demanded and income, so as income rises, demand will also rise which shows that the good is normal good.

d. The two goods are substitutes in consumption and consumers are sensitive to prices

Organic fruits are grown without pesticides and chemical which is not case of inorganic fruits. They act as substitute goods which leads to price sensitivity in these goods. As price of one goes up, demand for other will rise.