Question

When two goods are substitutes, we expect their (Click to select) リto be | (Click to select)リ

Answer 1

1) Substitute good are those goods which are used in place of each other. Example; Tea or Coffee. Increase in price of one increases the demand of other and vice-versa.

When goods are substitute then Cross price elasticity of demand is positive.

2) Es = % change in quantity supplied / % change in price = 15/10 = 1.5 > 1

Elastic Supply

3) Producers can make more adjustments in the long run that in the short run.

Long run is a period of time where all factors of production are variable. So, adjustments are more in long run which makes supply more elastic.

4) a) Demand is Elastic

TR at $ 10 = P x Q = 10 x 350 = 3500

TR at $ 20 = 20 x 300 = 6000

TR increases

b) Demand is Elastic because Qd falls as price increases.

TR at $ 30 = 30 x 250 = 7500

TR at $ 40 = 40 x 200 = 8000

TR increases

c) Demand is Elastic

TR at $ 50 = 50 x 150 = 7500

TR at $ 60 = 60 x 100 = 6000

TR decreases.