Answer to Question #230554 in Microeconomics for lovely

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.

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

Answer 1

a) FALSE. If the cross-price elasticity is positive, then it means that two products are substitutes to each other.

b) FALSE. We use the income elasticity of demand to determine whether a product is luxury and not the own-price elasticity of demand. When the income elasticity of demand is greater than one, then the product is a luxury.

c) TRUE. An increase in demand results in a surge in demand.

d) TRUE. A flatter supply curve implies that the supply is elastic. When the supply is elastic, the price elasticity of supply is higher than one.