Question:
The demand for good X is price inelastic and income inelastic. Good X is also a substitute to good Y. Identify the good X from the table below.
(1) PED: 0.8, YED: 0.25, Cross elasticity: 1.4
(2) PED: 0.8, YED: 1.25, Cross elasticity: 0.4
(3) PED: 0.9, YED: 0.25, Cross elasticity: -1.4
(4) PED: 0.8, YED: 1.25, Cross elasticity: 0.4
(5) PED: 0.6, YED: 0.45, Cross elasticity: -1.4
Correct Answer:
(1)
Answer Explanation:
Price inelastic means PED < 1. Income inelastic means YED is between 0 and 1. A substitute good must have a positive Cross-Price Elasticity (XED > 0). Only option (1) satisfies all these conditions simultaneously.
Topic: Elasticity Year: 2023
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