Question

6. When an increase in price of one commodity decreases the demand for another commodity (negative cross price effect), then two commodities are substitute goods  

1. True
2. False

7. When the increase in price of one commodity decreases the demand for another commodity (negative cross price effect), then the two commodities are said to be complementary goods  

1. True
2. False

8. An increase in income of consumers will result in an increase in demand of a commodity only if, it is considered as a superior commodity by the consumers

1. True
2. False

9. An increase in advertising outlay by a firm increases the quantity demand of its product because it enhances its quality

1. True
2. False

10. An increase in expected/future price of a commodity will always increase its demand in the present period

1. True
2. False

Answer 1

When an increase in price of one commodity decreases the demand for another commodity (negative cross price effect), then two commodities are substitute goods

Answer- FALSE.

Cross price effect is said to be negative when increase in the price of one commodity leads to a decrease in the demand for another commodity.Substitute goods are those goods which satisfy the same type of need and hence can be used in place of one another to satisfy a given want. In case of substitute goods, cross price effect is positive and not negative . An increase in the price of one good, causes an increase in the demand of another good( its substitute) as substitute is now relatively cheaper . For example- tea and coffee are substitute goods. An increase in the price of tea will cause an increase in the demand for coffee as coffee is now relatively cheaper and can be used in place of tea to saitsfy the given want. Commodities which have cross negative price are called complementary goods.

When the increase in price of one commodity decreases the demand for another commodity (negative cross price effect), then the two commodities are said to be complementary goods

Answer- TRUE

Cross price effect is said to be negative when increase in the price of one commodity leads to a decrease in the demand for another commodity. Two commodities in such case are said to be complementary goods. Complementary goods are those goods which are consumed jointly or demanded together. Complementary goods have negative cross price effect. An increase in the price of one commodity will decrease the demand for another commodity( its complement). For example- bread and butter are complementary goods. They are used together. An increase in the price of butter will not only decrease demand for butter, but also for bread.

An increase in income of consumers will result in an increase in demand of a commodity only if, it is considered as a superior commodity by the consumers

Answer- TRUE

Superior commodities are those commodities which are consumed by high income group of people and inferior goods are those which are consumed by poor people. An increase in income will lead to increase in demand for superior commodity as more can be consumed with more income. But an increase in income leads to decrease in demand for inferior commodity. It happens because as income of consumer increases, consumer can afford to purchase superior commodity in place of inferior commodity with more income and hence demand for inferior goods fall with rise in income. So, it follows that  an increase in income of consumers will result in an increase in demand of a commodity only if, it is considered as a superior commodity by the consumers.

An increase in advertising outlay by a firm increases the quantity demand of its product because it enhances its quality.

Answer- TRUE

When a firm increases its advertising outlay, it is able to differentiate its product from other products and also highlight its special features. It emphasises on the quality aspect of the product which attracts more customers and demand for product increases.

An increase in expected/future price of a commodity will always increase its demand in the present period.

Answer-TRUE

If price of a commodity is expected to rise in future, then consumers will demand more of the commodity in the present period with a view to avoid it purchasing it at a higher price in future. Hence, increase in expected/future prices of a commodity will always increase its demand in the present period.