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Which of the following statements are correct?


Which of the following statements are correct?

i) An increase in the price of a product will cause the demand curve of a substitute product to shift to the left.

ii) If a producer manufactures a unit elastic product, he/she cannot influence total revenue by changing the price.

iii) Frictional unemployment occurs when people are between jobs.

iv) The elasticity of products changes over time.

v) If products X and Y are complimentary an increase in X’s price will lead to an increase in demand for Y

A. i,iii,v

B i,ii,iii,v

C i,iii

D ii, iv, v

E ii, iii, iv

✅ Answers (1)

Private answer

E ii, iii, iv
Option I is incorrect because it misrepresents the relationship between substitute goods and the demand curve. When the price of a good increases, the demand for its substitute will increase, but this will shift the demand curve to the right, not the left. This is because consumers will switch to the substitute, leading to an increase in demand for it. Therefore, Option I is incorrect.
Frictional unemployment refers to unemployment that occurs when people are in the process of transitioning between jobs. It is a type of unemployment that is not caused by changes in the economy but rather by individuals' decisions to leave their current jobs to look for new opportunities. Frictional unemployment can be caused by factors such as changes in career aspirations or the need to relocate. The time period between jobs when a person is frictionally unemployed is typically short, and it is often considered to be a natural part of the job market.
A unit elastic product has an elasticity coefficient of 1, which means that the change in price causes a proportional change in the quantity demanded. If the producer raises the price of a unit elastic product, the demand for it will decrease proportionally, resulting in reduced sales. As a result, the revenue generated by the product will remain unchanged or may decrease slightly. Therefore, the producer should consider the elasticity of the product when making pricing decisions to avoid a significant decline in sales.
Elasticity is the degree to which the quantity demanded or supplied of a good or service changes in response to changes in price or other factors. The elasticity of demand or supply varies depending on the time period considered. In the short term, consumers and producers may have limited options to adjust to changes in price or cost, so the elasticity is typically higher. However, over time, consumers and producers can adjust their behaviors or find alternatives, reducing the elasticity.
Option V is incorrect because it misrepresents the relationship between complementary goods and the demand curve. When the price of one complementary good increases, the demand for both goods will decrease because consumers will purchase less of both. Therefore, increasing the price of good X will reduce the demand for X as well as the demand for its complementary good Y. As a result, Option V is incorrect.

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Answered on June 12, 2020 4:06 pm

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