Question

Choose the correct answers :

1. If the demand for product A displays high and postitive cross-price elasticity with respect to the price of product B, then:

a. the demand for product A is likely to have a low price elasticity

b. product A and B are subtitutes

c. products A and B are complements

d. the demand for product B is likely to have a low price elasticity

2. Fast food is believed to be an inferior good. This means that:

a. the quantity of fast food consumed decreases as income increases

b. the income elasticity of demand for fast food is positive

c. The quantity of fast food consumed will always be high

d. fast food is really not quality food

Answer 1

Answer:

b. product A and B are subtitutes

a. the quantity of fast food consumed decreases as income increases

Explanation:

Cross price elasticity of demand measures the responsiveness of quantity demanded of good A to changes in price of good B.

Cross price elasticity = percentage change in quantity demanded of good A / percentage change in price of good B.

The cross price elasticity of substitute goods are always positive because if the price of good B increases, the Quanitity demanded of good A rises.

Substitute goods are goods that can be used in place of another good.

Complement goods are goods that are used together. E.g. car and gas

Inferior goods are goods whose demand increases when income falls and whose demand falls when income rises.

I hope my answer helps you