You have the following information on the price elasticities of the demands for

ID: 1091649 • Letter: Y

Question

You have the following information on the price elasticities of the demands for goods Y and X:

Goods Price elasticity Cross-price elasticity Income elasticity

Y -0.2 0.8 -0.8

X -0.5 0.9 -1.2

Fill out the spaces in the following statements:

Based on the price elasticity, we can say that good X is price ______

Based on the cross-price elasticity, we can say that goods X and Y are _____

Based on the income elasticity, we can say that good Y is ______

Based on the price elasticity, we can say that good X is price insensitive/inelastic/relatively inelastic.

It is because the absolute value is .2 (less than 1)

b) Based on the cross-price elasticity, we can say that goods X and Y are Substitutes.

It is because cross price elasticity is positive. Means, if price of X increases, demand of Y increases.

c) Based on the income elasticity, we can say that good Y is Inferior good.

It is because Incpome elasticity is negative. An increase in income will lead to a fall in the demand of Y.

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