Answer: True.
Explanation:
Here, the statement is related to the economic theory of demand, not with economic theory of supply. So, we are considering only law of demand.
The statement is true according to the economic theory of demand.
Economic theory of demand states that other things remains constant, increase in the price of a commodity results in lower demand for that commodity and vice versa. There is an inverse relationship between the price and demand of a commodity.
Economic theory of supply states that other things remains constant, increase in the price of a commodity results in higher supply for that commodity and vice versa. There is a direct relationship between the price and supply for a commodity.
When the price of good a increases, the total revenue from good a is unchanged. From this we know that the demand for good a is unitary elastic
Whenever the change in the price of a good occurs there is a change in the demand of the good as well. This certainly affects the revenue generated from that good.
This change in demand can be mainly classified into different types i.e. elastic, inelastic and unitary.
However, unitary elastic demand is the one in which change in the price causes exact proportionate change in the demand as well. This means that the revenue generated from the good remains unchanged.
In other words, the good is being consumed in the same amount and price has not affected the consumption.
If you want to know more about the unitary elasticity demand, click here
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On a supply and demand graph, the line that indicates price is the y-axis. The supply and demand graph has axis that contains price (y-axis) and quantity (x-axis). This graph play an important role in the study of economics. It will indicate how much to produce to meed demands and still gaining money or just to breakeven.
Answer:
The price of put option is $2.51
Explanation:
The relation between the European Put option and Call option is called the Put-Call parity. Put-Call parity will be employed to solve the question
According to Put-Call parity, P = c - Sо + Ke^(-n) + D. Where P=Put Option price, C=Value of one European call option share. Sо = Underlying stock price, D=Dividend, r=risk free rate, t = maturity period
Value of one European call option share = $2
Underlying stock price = $29
Dividend = $0.50
Risk free rate = 10%
Maturity period = 6 month & 2 month, 5 month when expecting dividend
P = c - Sо + Ke^(-n) + D
P = $2 - $29 + [$30 * e^[-0.10*(6/12)] + [$0.50*e^(-0.10*(2/12) + $0.50*e^(-0.10*(5/12)]
P = $2 - $29+($30*0.951229) + ($0.50*0.983471 + $0.50*0.959189)
P = -$27 + $28.5369 + $0.4917 + $0.4796
P = $2.5082
P = $2.51
Therefore, the price of put option is $2.51
100000 X 19% = 19000
100000 X 7% = 7000
<em>Total deduction: $26,000</em>
$74,000 per year he will get after deduction