If,for two goods,the cross-price elasticity of demand is 1.25,then
A)the two goods are luxuries.
B)the two goods are substitutes.
C)one of the goods is normal and the other good is inferior.
D)the demand for one of the goods conforms to the law of demand and the demand for the other good violates the law of demand.

Question

Quizplus · Accepted Answer

A cross-price elasticity of demand of 1.25 means that a 1% increase in price of one good leads to a 1.25% increase in demand for the other good. This indicates that the two goods are substitutes, as the rise in price of one good prompts consumers to switch to the other good.

If,for Two Goods,the Cross-Price Elasticity of Demand Is 1