Demand curve, demand flexibility, income flexibility and cross-flexibility

Q. #1

A family regularly spends 70% of its monthly income on food, and the remainder balance is spent on clothing. The consumers' behavior described above will not change even if clothing and food prices change.

1. Are food and clothing products that are normal, neutral or inferior? Explain.
2. Are food and clothing alternative, independent or complementary products? Explain.

Q. #2

In light of the recession in the tourism business, hotels in Tiberias have decided to reduce their overnight rates by 10%. As a result, revenue increased by 5%. What can we deduce about these changes?

1. The elasticity of demand for hotel overnight stay in Tiberias is necessarily less than 1 in absolute terms
2. The elasticity of demand for overnight stay is necessarily greater than 1 in absolute terms
3. It is not possible to determine what is the elasticity of the demand for hotel stay in Tiberias
4. The decrease in overnight stay price will yield losses because the price they charge is lower than the cost
5. All other answers are incorrect

Q. #3

Assume that the demand function is given by:P = 200-0.5X. What is the price for which unit demand flexibility exists? (i.e., the flexibility in its absolute value is equal to 1)

1. 100
2. 99
3. 50
4. There is no price that upholds the above
5. All other answers are incorrect.

Q. #4

A retail discount department stores chain has decided to lower prices recently. As a result, the quantity marketed increased. Nevertheless, the chain's management reported that its revenue had decreased relative to the period before the discount. What can explain the above result?

Q. #5

Netflix network, which provides TV content, series and movies, has launched a sale of 20 NIS instead of 40. As a result, the number of VOD (Video on Demand) downloads of a competing company has dropped by 40%.

Calculate the cross-flexibility.