1. We would expect the cross elasticity of demand between dress shirts and ties to be • A. positive, indicating normal goods. • B. positive, indicating complementary goods. • C. negative, indicating substitute goods. • D. negative, indicating complementary goods. Exercise3 for Exy 2. Compared to coffee, we would expect the cross elasticity of demand for • A. tea to be negative, but positive for cream. • B. tea to be positive, but negative for cream. • C. both tea and cream to be negative. • D. both tea and cream to be positive.
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 substitute goods is represented by figure 2. The case of a normal good is represented by figure 3. The case of an inferior good is represented by figure 4. The case of complementary goods is represented by figure (C) 0 Quantity of B Demanded (D) 0 Quantity of E Demanded
Answer1.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.