Question

QUESTION 2 If the price elasticity of demand for a product is -2, this implies that if the price increases by 2 percent, the quantity demanded will decrease by 1 percent. O if the price increases 1 unit, the quantity demanded will decrease by 2 units. O if the change in quantity demanded divided by the change in price is equal to 2. if the price increases by 1 percent, the quantity demanded will decrease by 2 percent. if the price increases by $1, the quantity demanded will decrease by 2 units. QUESTION 3 If the cross-price elasticity of demand for two goods is 1.25, then Oone of the goods is normal and the other good is inferio. Othe two goods are complimentary goods Othe two goods are luxuries. the two goods are substitutes. Othe demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand
Question 2 and 3

Answer 1

Ans. 2 d) if the price increases by 1 percent, the quantity demanded will decrease by 2 percent

Price elasticity of demand formula

Price elasticity of demand = ( % change in quantity demanded ) / ( % change in price)

here, the price elasticity of demand is negative because of 'law of demand', which says as the price of good increases, quantity demand for good decreases.

Ans. 3. d) the two goods are substitutes

cross-price elasticity of demand measures the % change in quantity demand for one good to % change in the price of other good

here, cross-price elasticity is positive that means quantity demand for one good increases when the price of other good increases which shows that two goods are substitutes. for example, if we have two types of pens one ball pen and another gel pen and both are substitutes to each other. if the price of ball pen increases, the quantity demand for gel pen increases and vice versa