If the cross elasticity of demand between goods X and Y is positive and between goods X and Z is negative, then X and Y are _______ and X and Z are _______.
A) price inelastic; income elastic
B) substitutes; complements
C) price inelastic; complements
D) complements; substitutes

Question

Quizplus · Accepted Answer

When the cross elasticity of demand between two goods is positive, it means that an increase in the price of one good leads to an increase in the demand for the other, indicating that the goods are substitutes. Conversely, a negative cross elasticity of demand indicates that an increase in the price of one good leads to a decrease in the demand for the other, suggesting that the goods are complements.

If the Cross Elasticity of Demand Between Goods X and Y