Question : Statement 1: The price elasticity of demand for a normal good is always negative.
Statement 2: Normal goods exhibit an inverse relationship between price and quantity demanded.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false.
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are false.
Solution : The correct answer is (B) Both statements are false.
Statement 1: The price elasticity of demand for a normal good is always negative.
This statement is false. The price elasticity of demand can be either negative or positive, depending on the responsiveness of quantity demanded to changes in price. For normal goods, the price elasticity of demand is typically negative, meaning that as price increases, the quantity demanded decreases. However, there are cases where the price elasticity of demand for normal goods can be positive, such as with Veblen goods or Giffen goods.
This statement is false. Normal goods generally exhibit a direct relationship or a positive relationship between price and quantity demanded. As the price of a normal good decreases, the quantity demanded typically increases, and vice versa. This is contrary to an inverse relationship where price and quantity demanded move in opposite directions.
Therefore both statements are false.
Question : Statement 1: Elasticity of demand measures the sensitivity of quantity demanded to changes in price.
Statement 2: If the percentage change in price is greater than the percentage change in quantity demanded, demand is considered elastic.
Question : Statement 1: Cross elasticity of demand measures the responsiveness of quantity demanded of one good to changes in the price of another good.
Statement 2: Positive cross elasticity of demand indicates that two goods are substitutes.
Question : Statement 1: The price elasticity of demand for a product is zero when quantity demanded does not change with a change in price.
Statement 2: Zero price elasticity indicates a vertical demand curve.
Question : Statement 1: When the price of a product increases by 10%, and its quantity demanded decreases by 5%, the price elasticity of demand is - 0.5.
Statement 2: The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the
Question : Statement 1: If the price elasticity of demand for a product is -1.5, a 10% increase in price will result in a 15% decrease in quantity demanded.
Statement 2: The absolute value of the price elasticity of demand represents the percentage change in quantity demanded for
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