Answer to Question #230842 in Microeconomics for john

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

False. A positive cross price elasticity for substitute goods is possible when the price of that particular good increases thus demand for the substitute good also increases. b). True. Normal goods are associated with a positive demand income elasticity where an increase in quantity demanded will lead to a rise in income thus if it is a luxury product the elasticity of demand is greater than 1. c) False. The cost of production will increase with the increase of journalist’s salaries; hence it will reduce the market demand by increasing the price of newspapers thus shifting the demand curve to the right. d) True. Supply is said to be relatively elastic when price elasticity of supply is greater than 1, thus the percentage change of the price is less than the quantity supplied percentage change.