Gross substitute and gross complementarity of a good is established on the basis of its substitution and income effects.

Md Ariful Islam

0 like 0 dislike
1 views
Share with your friends

1 Answers

Md Ariful Islam

Call

Solution:

Yes, it is true that gross substitutes and gross complimentary of a good are established on the basis of its substitution and income effects.

Two goods are gross substitutes if the elasticity of substitution between the two products exceeds the maximum of the respective income elasticities of demand. Normally, two commodities are considered gross substitutes if a price increase of one of the products results in non-decreasing demand for the other good, due to a decrease in increase of income levels. As such, there will be a substitution effect due to a change of the relative prices when the consumer's income is adjusted in a manner that the old preferred consumption bundle is still affordable at new prices. Similarly, the income effect will capture the change in demand when the consumer's income changes.

0 like 0 dislike
1 views
Talk Doctor Online in Bissoy App
Mensy ltd, produce two goods that have income elasticity values as follows- Good A= -0.5 and Good B=4. a) explain the income elasticity of demand for good A and good B

Income elasticity for Good A is -0.5. It means that when income increases on one point, consumption of this Good A decreases on 0.5 points. It can be some cheap...

1 Answers 1 views
Mensy Ltd produce two goods that have income elasticity values as follows - Good A= -0.5 and Good B= 4. Explain the income elasticity of demand for Good A and Good B.

In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus. It...

1 Answers 1 views
How would you decompose the total effect of a reduction in the price of an inferior good into the income and substitution effect components? What will happen if the income effect is too large?

When price of an inferior good falls, its negative income effect will tend to reduce the quantity purchased, while the substitution effect will tend to increase the quantity purchased. But...

1 Answers 1 views
There are two goods in the economy good 1 and good 2 how does the budget line change if the price of good 1 decreases by a dollar but the price of good 2 and the consumers income remain unchanged

If the price of good 1 increases ,the budget line shifts inwards, this will pivot the budget line towards the intercept of good 2. Good 1 won't be bought in...

1 Answers 1 views
Discuss in terms of the definition of gross income and any special inclusion if the scenarios above relate to gross income. Consider the effects of any exemptions if applicable

Gross income, or gross pay, is an individual's total pay before accounting for taxes or other deductions. At the company level, it's the company's revenue minus the cost of good...

1 Answers 1 views
Jane earns an income of R10 000 a month and pays R1 500 towards income tax, and when her income increases to R24 000 a month, she now pays R3 600 towards income tax. This is an example of a?

A progressive tax

1 Answers 1 views
Jane earns an income of R10 000 a month and pays R1 500 towards income tax, and when her income increases to R24 000 a month, she now pays R4 200 towards income tax. This is an example of a

This is an example of an increase in the income tax rate depending on the level of wages.With an income of 10,000, Jane pays income tax in the amount of...

1 Answers 1 views
Mensy Ltd produces two goods that have income elasticity values as follows. Good A=-0.5 and good B=4 Explain the income elasticity of demand for good A and good B

The Income Elasticity of Demand measures the rate of response of quantity demand due to a raise (or lowering) in a consumers income. Good A has IEoD < -0.5. It...

1 Answers 1 views
Depreciation cause? 1.Net investment = gross investment 2.Net investment > gross investment 3.Net investment < gross investment 4.Net investment = 0

.Net investment < gross investment

1 Answers 1 views
What is Gross Income? What is Gross Revenue?

For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. Gross revenue is...

1 Answers 1 views
X