Answer to Question #47809 in Microeconomics for Yoyo

Question

f the price of good x falls and the quantity of good y consumed by an individual decreases, the elasticity of the individual’s demand curve for good x is less than one. [Hint: This is a tricky question that turns on how the amount spent on a good and its elasticity are related.] Explain in detail why this is true, false, or uncertain

Answer 1

It's uncertain, because if the price of good x falls and the quantity of good y consumed by an individual decreases, these goods are substitutes and we can speak only about the cross elasticity of demand, but not about the elasticity of the individual’s demand curve for good x.