Question

1. What happens to the long-run equilibrium price and quantity of cashew milk if almond milk becomes more expensive AND cashews (that are used in the production of cashew milk) less expensive?

   		Price increases and the change in quantity is ambiguous.
   		Price decreases and the change in quantity is ambiguous.
   		Quantity increases and the change in price is ambiguous.
   		Quantity decreases and the change in price is ambiguous.

QUESTION 7

1. If the price elasticity of demand is 2, what is the percentage change of price that is consistent with a decrease in quantity demanded of 40%? [Type a whole number, no gaps. If the number is positive don't put any sign, if negative put a minus in the front.]

QUESTION 8

1. If the price elasticity of demand is 0.5, what is the percentage change of quantity demanded that is caused by a 10% increase in price? [Type a whole number, no gaps. If the number is positive don't put any sign, if negative put a minus in the front.]

QUESTION 9

1. The income elasticity of demand for good X is -0.5. What can you infer about good X?

   		The demand for good X is inelastic.
   		The demand for good X is elastic.
   		Good X is a normal good.
   		Good X is an inferior good.

QUESTION 10

1. The cross price elasticity of demand for good X and good Y is -1.2 and the income elasticity of demand for good X is 0.5. What can you infer about good X?

   	a.	Good X and good Y are complements.
   	b.	Good X is a normal good.
   	c.	The demand of good X is inelastic.
   	d.	All of the above.
   	e.	(a) and (b) are correct
   	f.	(a) and (c) are correct.
   	g.	(b) and (c) are correct.

Answer 1

Ans) 1) When price of almond milk increases, demand for cashew milk will increase as both are substitute goods.

With decrease in price of cashew, which is input for cashew milk, supply will increase.

As a result, quantity will increase and price will depend upon the magnitude of shift of demand and supply curve i.e indeterminate.

Option c.

2) Price elasticity of demand = %change in quantity demanded ÷ %change in price

-2 = (-40)/ %change in price

%change in price = 20%

(Price elasticity of demand carries a negative sign)

3) -0.5 = %change in quantity demanded ÷ 10

%change in quantity demanded = -5%

4) Normal goods have positive income elasticity.

Inferior goods have negative income elasticity.

Option d. (Good X is inferior good)

5) Cross price elasticity is positive for substitute goods and negative for complementary goods.

Since cross price elasticity is negative (-1.2), goods X and Y are complementary goods.

Since income elasticity is positive (0.5), good X is normal good.

Option d