Answer to Question #48093 in Microeconomics for Sarah

Question

If the price of good x falls and the quantity of good y consumed by an individual decreases, the elasticity of the individual’s demand curve for good x is less than one. [Hint: This is a tricky question that turns on how the amount spent on a good and its elasticity are related.]
True, False or Uncertain...Explain.

Answer 1

If the price of good x falls and the quantity of good y consumed by an individual decreases, we can speak only about the cross-price elasticity of demand, but not about the elasticity of the individual’s demand curve, and in our case we can conclude, that these goods are substitutes and cross-price elasticity is higher than one.
So, the statement is false.