Read each statement below and indicate if the statement is true or false - Leaving Cert Economics - Question 7 - 2015
Question 7
Read each statement below and indicate if the statement is true or false. [Tick (✓) the appropriate box.]
STATEMENT
A good with an income elasticity of demand (YED)... show full transcript
Worked Solution & Example Answer:Read each statement below and indicate if the statement is true or false - Leaving Cert Economics - Question 7 - 2015
Step 1
A good with an income elasticity of demand (YED) of +2.5 is a luxury good.
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Answer
This statement is True. A positive income elasticity of demand greater than 1 indicates that the good is a luxury good, as consumers increase their consumption significantly as their income rises.
Step 2
When demand is price elastic, a reduction in price will lead to a decrease in total revenue.
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Answer
This statement is False. When demand is price elastic, a reduction in price leads to a proportionally larger increase in quantity sold, resulting in an increase in total revenue.
Step 3
When many close substitute goods are available, demand for any one of them should be highly elastic.
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Answer
This statement is True. The existence of many close substitutes makes consumers more sensitive to price changes, thus increasing the elasticity of demand for each substitute.
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