If the Cross Elasticity of Demand Is +2

question 44

Multiple Choice

If the cross elasticity of demand is +2.0, this means that

• A)the percentage change in quantity demanded of a product is 2 times the percentage change in price of some other product.
• B)if quantity demanded of a product fell by 1 percent, price of another product would fall by 2 percent.
• C)if price of one product was raised by 2 percent, quantity demanded of another product would fall by 2 percent.
• D)if price of one product was raised 2 percent, quantity demanded of another product would rise 2 percent.
• E)the percentage change in quantity demanded of a product is 2 times the percentage change in the price of that product.

Distinguish between the utility of expected income and expected utility of income.

Recognize how subjective probabilities and risk premiums influence individuals' choices under risk.

Determine the impact of diversification and insurance on managing risk.

Apply the concept of marginal utility of income to understand risk aversion.