6. Which of the following statements is true for a price consumption curve for good X?

[1] Nominal income falls as the price of X falls.

[2] The absolute price of X falls but relative prices of good X and good Y remain the same.

[3] It is always downward sloping for a normal good.

[4] It represents only those market baskets that are optimal for a given price ratio.

7. If the supply equation is given as Q = -500 + 20P, the price elasticity of supply between

R100 and R200, calculated using the arc elasticity of demand, is ...

[1] 0.6

[2] 0.83

[3] 1.2

[4] 3.0

8. A decrease in the price of a product from R5 to R2 causes the quantity demanded to

increase from 100 to 200 units. Using the arc elasticity of demand, the price elasticity of

demand is ...

[1] 0.77

[2] - 0.58

[3] - 0.82

[4] - 1.29

9. A difference between luxuries and necessities is that....

[1] luxuries are not purchased by low-income people.

[2] rich people buy fewer necessities than do poor people.

[3] the percentage of income spent on luxuries increases as income rises, whereas the

percentage of income spent on necessities falls as income increases.

[4] all necessities are inferior goods and all luxuries are normal goods.

10. The income elasticity of an inferior good is ...

[1] negative, because as people become richer, they increase their purchases of the

good by smaller and smaller amounts.

[2] 1, because the increased income offsets the desire to consume less of the good

because it is inferior.

[3] greater than 1, because the richer you become, the less you will consume of the

good.

[4] negative, because higher income leads to a reduction in the amount consumed of the

produc