Micro Unit 2, Question 11- Cross-Price Elasticity of Demand

The video tutorial explains the concepts of income elasticity of demand and cross price elasticity of demand. It begins by introducing these concepts and then delves into the income elasticity of demand, explaining how changes in income affect the quantity demanded of a product, distinguishing between normal and inferior goods. The tutorial then covers cross price elasticity, illustrating how the price change of one product affects the demand for another, identifying substitutes and complements. Finally, it emphasizes the importance of understanding elasticity coefficients, as they may be presented in tests without explicit context.

What does a positive income elasticity of demand indicate about a product?

• The product is a luxury good.

• The product is a normal good.

• The product is an inferior good.

• The product is a necessity.

If the income elasticity of demand is negative, what type of good is it?

• Substitute good

• Inferior good

• Luxury good

• Normal good

What does a positive cross price elasticity of demand suggest about two products?

• They are unrelated.

• They are substitutes.

• They are complements.

• They are inferior goods.

If the price of milk increases and the demand for cereal decreases, what is the relationship between these two products?

• They are substitutes.

• They are complements.

• They are normal goods.

• They are inferior goods.

Why is it important to understand the sign of an elasticity coefficient?

• To calculate the total revenue.

• To predict future market trends.

• To determine the price of a product.

• To identify the type of good or relationship between products.