Exhibit 5-4 Price of Good X Price of Good Y Quantity of Good X . Quantity of Goo

Question

Exhibit 5-4 Price of Good X Price of Good Y Quantity of Good X . Quantity of Good Y Refer to Exhibit 5-4. As a consequence of the depicted change in the supply of X, the demand curve for Y shifted from Di to D2. It follows that a. X and Y are substitutes. b. Xand Y are complements. c. X and Y are inferior goods d. demand for Y is price elastic. Refer to Exhibit 5-4. As a consequence of the d shifted from D, to D2. Which of the a cars and gasoline b. Peter Pan peanut butter and Jif peanut butter c. water and diamonds d. milk and cereal e. a and d epicted change in the supply of X, the demand curve for Y following pairs of goods are most likely represented by X and Y? Refer to Exhibit 5-4. As a consequence of the depicted change in supply of X, the demand curve for Y shifted from D, to D2 What is true of the coefficient of cross elasticity of demand for Y? a. >0 -0 It cannot be determined from the information provided. c. d.

Explanation / Answer

Answer 1. a. X and Y are substitutes.

When supply of X increased demand for Y reduced. This means that when X was available at a lesser price people shifted to and demand of Y reduced. Thus X and Y are substitutes.

Answer 2. b. Peter pan butter and gif butter.

These are two brands of butters and can be substitutes of each other. A and D are complementry and C is unrelated to each other.

Answer 3. a. E > 0

When two goods are substitutes of each other cross elasticity is positive and more than 1. Here X and Y are substitutes so cross elasticity of demand will be positive.

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