The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4 implies that
A) natural gas and fuel oil are substitutes.
B) natural gas is a normal good.
C) the quantity of natural gas demanded will decrease by 1.6% when the price of fuel oil decreases by 4%.
D) both a and c

Question

Quizplus · Accepted Answer

The positive value of the cross-price elasticity coefficient (0.4) indicates that natural gas and fuel oil are substitutes, meaning that a change in the price of one product affects the demand for the other product. Additionally, the magnitude of the coefficient (0.4) means that a 1% decrease in the price of fuel oil leads to a 0.4% increase in the quantity demanded of natural gas, and vice versa. Therefore, a 4% decrease in the price of fuel oil would lead to a 1.6% increase in the quantity demanded of natural gas (4% x 0.4 = 1.6%).

The Fact That the Cross-Price Elasticity of Natural Gas with Respect