1)Is the cross-price elasticity of demand between petrol and fuel-efficient small cars positive or negative? Explain

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1)Is the cross-price elasticity of demand between petrol and fuel-efficient small cars positive or negative? Explain.

2)Suppose the price of a good increases. If the percent increase in price is less than the percent decrease in quantity consumed in absolute terms, then we know the good:

a) is a substitute good.

b) is a complementary good.

c) has an elastic demand.

d) has an inelastic demand.

3)When the government imposes a tax on the sale of a particular good, the sellers try to pass the tax onto consumers by raising the price of the good sold. Assume you own a tire company, and the government decides to impose a $1.00 tax on each tire sold.

a) Based on the basics of supply and demand, explain what would likely happen to the price you charge and the quantity of tires sold.

b) Would the amount of the tax passed onto the consumer be greater when demand is elastic or inelastic? Explain.

4)

Perfectly inelastic demand occurs when the demand curve is vertical.

True

False