Answer to Question #230494 in Microeconomics for Ashar

Question

State whether the Statement is TRUE or FALSE. Also write the reason (Without reason your answer will not accepted)

a) If value of cross price elasticity is positive then it means there are less close substitutes are available of that product.

b) In case of luxury products, the own price elasticity of demand is greater than one.

c) If salaries of journalist go up then demand curve of newspaper will shift upward.

d) When price elasticity of supply is greater than one it means supply curve is flatter.

Answer 1

a) If the value of cross-price elasticity is positive then it means there are fewer close substitutes are available for that product. This statement is false because the demand for one good increases when the price for the substitute good increases.

b) In the case of luxury products, the own price elasticity of demand is greater than one. This statement is true because luxury goods are sensitive to price changes.

c) If salaries of journalists go up then the demand curve of newspapers will shift upward. This statement is true because an increase in their salaries will cause newspaper publishers to reduce the quantity supplied at any given price.

d) When the price elasticity of supply is greater than one it means the supply curve is flatter. This statement is true because the supplier will change the quantity supplied in response to changes in price.