question archive 1)Is the cross-price elasticity of demand between petrol and fuel-efficient small cars positive or negative? Explain
1)Is the cross-price elasticity of demand between petrol and fuel-efficient small cars positive or negative? Explain
Subject:EconomicsPrice:4.88 Bought3
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
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1)Fuel-efficient small cars use much less petrol than other cars do. Because of this, an increase in the price of petrol would cause an increase in the demand for fuel-efficient cars while the demand for other cars would decrease. This is due to the fact that fuel-efficient cars would become more attractive when prices of fuel are high. Hence, the cross-price elasticity of demand between these two goods should be positive.
2)The correct option is d) has an inelastic demand.
If the percent decrease in demand is less than the percent increase in price, the value of the PED is lesser than 1. This is the case with products that have an inelastic demand.
3)a. If the government imposes a tax of $1 on each tire sold, then the prices of tires will increase, resulting in a fall in the demand for goods and services. Thus, the quantity of tires sold will decrease.
b. The amount of the tax passed onto the consumer will be greater when the demand for the good is inelastic. It is because increases in prices of tires would not impact the demand for tires when demand is inelastic.
4)please see the attached file for the complete solution.
