Question

If the income elasticity of demand for a good is negative, then the good must be an inferior good.

	True
	False

Question 2

The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.

	True
	False

Question 3

A price ceiling set above the equilibrium price is not binding.

	True
	False

Question 4

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are substitutes.

	True
	False

Question 5

A tax of $1 on sellers shifts the supply curve upward by exactly $1.

	True
	False

Answer 1

If the income elasticity of demand for a good is negative, then the good must be an inferior good.

ANSWER: TRue

INCOME Elasticity measures the responsive change in quantity demanded of a good with the change income.

$Ey=\frac{percentage change in quantity demanded}{Percentage change in income}$

For a normal good, increase in come cause an increase in quantity demanded .

for inferior good increase in income cause a decrease in quantity demanded. When income of the people increases the they reduce the consumption of inferior good. Therefore income elasticity of inferior good is negative.

Question 2

The law of demand states that, other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.

ANSWER: TRUE

LAW of demand states that when other things remains constant, price and quantity demanded are inversly related. WHEN price increases, quantity demanded decreases and viceversa. Thus the demand curve is negatively sloped.

Question 3

A price ceiling set above the equilibrium price is not binding.

TRUE.

ANSWER: PRICE CEILING is imposed by the government to prevent seller from charging high prices. It is usually set below market determined price. price ceiling is the maximum price a seller can charge from consumer.

Price biding : is the practice of selling commodity to the highest paying customer. Thus price ceiling and bidding are different concepts.

Question 4

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are substitutes.

ANSWER: FALSE.

EXPLANATION: Cross elasticity refers to the degree at which quantity demanded of X-commodity changes as a result of change in the price of Y commodity.

E_XY=$Ey=\frac{percentage change in quantity demanded of x commodity}{Percentage change in price of Y}$

For substitute goods cross elasticity is positive

For complimentary goods cross elasticity is negative.

Question 5

A tax of $1 on sellers shifts the supply curve upward by exactly $1.

ANSWER: TRUE.

With the imposition of tax on buyers ($1) , the buyer incur more cost. As a result at given price producer is willing to supply only less amount (Q1)( which lesse than Q0 ). Thus supply curve shift upward by the same amount of tax ($1)

Tax amount price PO Q1 QO Quantity