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04-05-2008, 02:49 PM
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| Economics questions on elasticity? 1. A consumer purchases two products X and Y. When the price of X falls, he is observed to increase his purchases of both products. which of the following statements is correct? a) There is no substitution effect in this case b) The substitution effect is outweighed by the income effect c) There is a substitution effect but no income effect. d) The consumer's demand curves for X and Y have shifted in position. Other things being equal the burden of a specific sales tax on a product will be borne entirely by the producer if (more than one option can be picked) a) the PED is perfectly elastic b) the elasticity of supply is perfectly elastic c) the elasticity of supply is equal to the PED      |
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04-05-2008, 02:51 PM
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| The Answer is a)There is no substitution effect in this case. Had it been so, with increase in Income, why would one buy something which he or she is already buying. The burden of sales tax always falls on the consumer and not the producer. |
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