Question

Question 4 [10] Define the following: 4.1. Price elasticity of demand (also called point elasticity of demand) 4.2. The meaning of positive magnitude and negative magnitude in terms of elasticity of supply 4.3. Cross-price elasticity of demand 4.4. Law of diminishing returns 4.5. The budget line in terms of an indifference curve diagram

Answer 1

1) Price elasticity of demand refers to the percentage change in quantity demanded with a response to the percentage change in the price.

When the price changes, the quantity demanded or supplied changes in response to the change in price so the elasticity measures the degree of responsive of the change.

2) The positive magnitude shows that the demand or supply changes positively in response to the change in price as when price changes, the quantity increases.

The negative magnitude shows that the demand or supply changes negatively in response to the change in price as when price changes, the quantity decreases.

3) Cross price elasticity of demand refers ot the change in the quantity demanded of good X when the price of good Y changes

so, it measures the degree of responsiveness of change in the quantity of one good to a change in the price of it's related good such as substitute or a complementary.

4) The law of diminishing returns states that when the firm hires additional labor to increase the output, the output will increase in a diminishing rate as the productivity of the additional labor keeps decreasing so each additional labor's marginal productivity keeps decreasing.

As per HOMEWORKLIB RULES, the first four parts are answered.