QUESTION 32 Good x has an income elasticity of -1.2 and a cross price elasticity
ID: 1129258 • Letter: Q
Question
QUESTION 32 Good x has an income elasticity of -1.2 and a cross price elasticity of good y -0.9. What can we say about good x? good x is normal and a complement of good y. O B. good x is normal and a substitute of good y ° C. good x is inferior and a complement of good y. OD. Good x is inferior and a substitute of good y QUESTION 33 demand for normal goods and demand for inferior goods, ceteris paribus. An increase in real income will 0 A. decrease, decrease O B. decrease, increase C. increase, decrease D. increase, increase QUESTION 34 Which of the following is a fixed cost in the long run? O A Wages B. Rent O c. Advertising 0 D. None of the aboveExplanation / Answer
32) The correct answer to this question is "C". Good X is inferior and that is why it's negatively related to the income. i.e. an increase in income will lead to a fall in demand of the good. Y is a complementary for that good because of it the demand of that good has also decreased but not as much as good X.
33) An increase in real income will "increase" in demand for normal good and "Decrease" demand for inferior goods.
34) "None of the above" In the long run a firm can expand production, change machinery, rent new places, advertise more or pay more wages. In the long run, everything can be changes hence they are all variable.
36) "Substitution effect" suggest if the price of one good rises people will demand more of other product.