Suppose that the value of the short-run absolute elasticity of demand for a good

Question

Suppose that the value of the short-run absolute elasticity of demand for a good is 0.38. Then, we know the long-run absolute price elasticity of demand will be A) 0. B) greater than 0.38. C) elastic. D) less than 0.38. 9) Suppose that when the price of squareroot beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and squareroot beer are A) substitutes, with a cross price elasticity of 0.5. B) complements, with a cross price elasticity of -0.5. C) substitutes, with a cross price elasticity of -2.0. D) complements, with a cross price elasticity of -2.0. 10) Use the above figure. Which graph depicts an inferior good? A) A B) B C) C D) D 11) Use the above figure. which graph depicts normal good? A) A B) B C) C D) D

Explanation / Answer

Answer 8:

In the long run, the price elasticity of demand is more elastic than the short run level, Thus, it will be more than the short run elasticity of demand. Thus, Option B.

Answer 9 :

As price of one increases, the quantity demanded of the other will fall. Thus, we get a negative relationship and thus goods are complements.

Elasticity= -Percentage change in quantity demanded / Percentage change in price =- 20 / 10 =- 2

Thus, option D.

Answer 10 :

Inferior good is the one whose quantity demanded declines with the increase in income and quantity demanded increases with the decline in income. Thus, negative income effect.This is depicted by Option B.

Answer 11:

Normal good has positive income effect. Thus, option A.

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