Question

If an increase in income results in a decrease in the quantity demanded of a good then for that good, the a cross-price elasticity of demand is negative b. income elasticity of demand is positive. price elasticity of demand is elastic d income elasticity of demand is negative. 9. if the cross-price elasticity of demand for two goods is 1.25, then a the two goods are luxuries. b. the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand the two goods are substitutes d one of the goods is normal and the other good is inferior 10. Generally, a firm is more willing and able to increase Quantity supplied in response to a price change when the firm is experiencing capacity problems b. the relevant time period is long rather than short. Supply is inelastic d the relevant time period is short rather than long. 11. Holly has $11 to spend on either shakes or pizza and wants to maximieher utility, The price of each slice of pizza is $2.00, and the price of each shake is $1.00 First, fi in any missing values in the table provided on the answer sheet Then, determine Hollys optimal lutty-maximizing bundle of shakes and plaza 12. An optimizing consumer will select a consumption bundle in which a utility is maximized, and indifference curves are linear b. income is maximized, and prices are minimized. C utility is maximized, and prices are minimized d. Utility is maximized, subject to budget constraints 13. Figure 21-20 The following graph ilustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:

Answer 1

8. Income elasticity of demand shows how the % of quantity demanded changes with the %changes in the income. If the quantity demanded decrease with an increase in income, then the income elasticity of demand is negative. Option d is correct.

9. If the cross price elasticities of two goods is positive, it means that as the price of one good increases, the demand of the other good increases. Such goods are called substitutes. Since the given cross price elasticity is positive, therefore the goods are substitutes. Option c is correct.

10. Firms can adjust quantity supplied to prices more in the long run as compared to short run. Therefore the correct option is b)

11. Need the table in the answer sheet to answer this question.

12. While choosing the optimal bundle the consumer has to keep in mind the money constraint given by the budget constraint and maximise the utility. Therefore the correct option is d) maximise utility subject to the budget constraint.