We would expect the cross elasticity of demand between dress shirts and ties to be

1. We would expect the cross elasticity of demand between dress shirts and ties to be • A. positive, indicating normal goods.
Exercise 4 Quantity Demanded Quantity Demanded 2 0 Income O Income Price of A Price of C Refer to the diagram. 1. The case of

Answer

1.Shirts and ties are complementary goods and they are consumed together.Complementary goods cannot be substituted and hence,their cross price elasticity of demand is negative. Answer-D 2.Coffee and tea are substitutes.Cross pruce elasticity of demand for substitutes is positive. Coffee and cream are complementary goods and hence cross price elasticity of demand is negative. Answer-B 4.1.For figure D,when the price of C rises the quantity demanded of E rises.This signifies that C and E are substitutes.As price of C rises,people substitute relatively expensive C for relatively cheap E. Answer-Figure D. 2.For normal goods the quantity demanded rises when income rises.Figure A represnts normal goods. Answer-Figure A. 3.The quantity demanded for inferior goods fall with rise in income.B represent inferior goods. Answer-Figure B. 4.When the price of a complementary good falls,the quantity demanded of its complement rises because consumption of these two goods together becomes cheap. Figure C represent complementary goods.

Answer-Figure C

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