Question

Which of the following statements is true?

1) If the income elasticity of demand is less than zero, the good is an inferior good.
2) Only if the demand curve is vertical will sellers raise the price by the full amount of a tax.
3) Two goods are substitutes if the cross-elasticity of demand coefficient is positive.
4) A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent.
5) All of these.

Answer 1

All the provided statements are true, with goods being substitutes if their cross-elasticity of demand is positive, inferior goods having a negative income elasticity, and a price elasticity of supply of 1.5 indicating an elastic supply.

Step-by-step explanation:

Among the statements provided, statement 3 is true: Two goods are substitutes if the cross-elasticity of demand coefficient is positive. This indicates that an increase in the price of one good will lead to an increase in the demand for the other good. Statement 1 is also true, as an inferior good has an income elasticity of demand that is less than zero, meaning demand for the good declines as income increases.

Statement 4 correctly states that a price elasticity of supply coefficient equal to 1.5 indicates an elastic supply, and a 10 percent increase in price will indeed increase the quantity supplied by 15 percent. Consequently, the correct answer is '5) All of these.' since all provided statements are accurate descriptions of economic terms related to elasticity.