Question

I really need help on these questions. I need to understand the concepts on these practice problems for my test. I really do appreciate it!

14. (3 points) If the demand of good Y shifts to the right as a result of a decrease in the price of Z then it must be also true that Answer: (a) Y and Z are substitutes and their cross price elasticity is negative. (b) Y and Z are substitutes and their cross price elasticity is positive. (c) Y and Z are complements and their cross price elasticity is negative. (d) Y and Z are complements and their cross price elasticity is positive. 15. (3 points) Assume that the price elasticity of supply for a certain good is 5. Which of the following answers is consistent with a decrease in quantity demanded by 50%. Answer: (a) Prices increased by 50%. (b) Prices increased by 10%. (c) Prices decreased by 50%. (d) Prices decreased by 10%. 16. (5 points) If a tax is imposed on a market with inelastic demand and elastic supply, then Answer: (a) buyers will bear most of the burden of the tax. (b) sellers will bear most of the burden of the tax. (c) the burden of the tax will be shared equally between buyers and sellers. (d) it is impossible to determine how the burden of the tax will be shared.

Answer 1

Answer 14 the demand for Y shifts to the right to due to the rise in the price of the 2 commodity then these goods are complementary goods and have cross price elasticity negative. The complementary goods are tloose goods which are consumed together Fored petrol and car If the price of the petrol rises then demand for car falls. That is tomp demand for good and price of a complem -extary good have inverse relation Thus their elasticity is negative! because of inverse relation Answer is elasticity of supply % chance in price To change in Suitely Scanned with -Camscanner

For equilibrium in the economy percentage change in supply is equal percentage chande in demand. Thus percentage change in supply is - soy Ooooon es = sov. yoin price s = sol in price y oin price = loy. There is fall in price by 1oy as there direct relation blw supply and price. Answer 16 It there is in elastic demand angebetes and elastic Supply # for a commodity then incidence of tax will fall on consumers or buyers the reason is because of in elastis demand the Evantity demand not Ses Seminarge due to change in a CamScanner

2 L price and supply is elastic Thus all the tax incidence will on consumers. Answer to 12 rise The dead weight loss would tall due to increase in the dust to rise in tax. The reason is the change in tax is comprised of the change in tax revenue earned by government and change in dead-weight loss. Thus change in tax causes change in dead - weight loss Answer 18 If the siz tax increased in the economy Causes Changes in the increase in the tax revenue. The reason is the chance in fax is comprised of change in tax revenue earned by gout and Change in dead wei et loss. Thus na change in tax can cause increase change in dead weight ICS Scanned with C SS scanner