Give equation of Budget Line.

The budget line can be expressed as an equation:
M = (PA x QA) + (PB x QB)
Where:
M = Money income;
QA = Quantity of good 1
QB = Quantity of good 2
PA = Price of good 1
PB = Price of good 2

Elasticity of Demand by Percentage method:
E = % change in quantity demanded / % change in price.

% change in quantity demanded = (New quantity demanded - old quantity demanded)/
initial quantity * 100
(100-125)/125 = -0.2*100 = -20
% in price = (New price – old price)/ Initial price*100
(10-8)/8 = 0.25 *100 = 25
Price elasticity of demand Rs = -20/25 = -0.8

D.

Downward sloping convex.

Reason: If Marginal Rate of Substitution is constant throughout, the Indifference curve will
be downward sloping straight line.

The first law of demand states that as price increases, less quantity is demanded. This is
why the demand curve slopes down to the right. Because price and quantity move in
opposite directions on the demand curve, the price elasticity of demand is always negative.
Hence the measure of price elasticity of demand of a normal good carries minus sign as
there exists an inverse relationship between demand and price of the good.
On the other hand, a supply curve is characterized by a line that slopes up to the right.
Thus, as the price increases, more quantity is supplied. Because price and quantity move
in the same directions on the supply curve, the price elasticity of supply is usually positive.
Thus the price elasticity of supply always carries a plus sign.

A.

Shifts to the right.

Reason: Demand for inferior goods share a negative relationship with consumer's income.
Hence, when the income of the consumer falls, the demand for inferior good
increases leading to the rightward shift of the demand curve.