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In: Economics

You have the following information for goods X and Y: Goods Price elasticity Cross-price elasticity Income...

You have the following information for goods X and Y: Goods Price elasticity Cross-price elasticity Income elasticity X 0.4 -0.7 -1.8 Y 0.9 -0.7 0.6 Fill out the spaces in the following statements: Based on the price elasticity, we can say that good X is price ___________________ Based on the cross-price elasticity, we can say that goods X and Y are _______________ Based on the income elasticity, we can say that good Y is _________________

Solutions

Expert Solution

Based on the price elasticity, we can say that good X is price inelastic.

Based on the cross-price elasticity, we can say that goods X and Y are complementary goods.

Based on the income elasticity, we can say that good Y is a normal good.

Explanation: If the absolute value of price elasticity is less than 1, then it is price inelastic. So, good X is price inelastic.

When the cross-price elasticity of two goods is negative, they are complementary goods. So, that goods X and Y are complementary goods. When the cross-price elasticity of two goods is positive, they are substitutes.

Normal goods have positive income elasticity and inferior goods have negative income elasticity.

Rahul Sunny answered 2 years ago
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