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    Question

    In a model with two goods, x & y, with x plotted on the

    horizontal axis, the price consumption curve generated by changing the price of x is parallel to the x – axis. This implies that
    A The demand fro x is perfectly Inelastic Correct Answer Incorrect Answer
    B The demand for y has zero elasticity Correct Answer Incorrect Answer
    C The demand fro x has elasticity = -1 Correct Answer Incorrect Answer
    D The demand fro y has elasticity = -1 Correct Answer Incorrect Answer

    Solution

    If PCC (Price consumption curve) is horizontal (due to change in price of x), it means Y is not changing and only X in changing. Equation of Budget line is Px.X + Py.Y =M. In this case, total expenditure on X remains same (even if there is change in price of X) and hence price elasticity is -1 for good X.

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