An increase in the price of one good leads to a decrease in the quantity demanded of the other good. The sign of this cross-price elasticity is _____, and the two goods are:
A) negative; complements.
B) negative; substitutes.
C) positive; complements.
D) positive; substitutes.

Question

Quizplus · Accepted Answer

When the price of one good increases and the demand for another good decreases, it indicates that the goods are complements. The cross-price elasticity of demand for complements is negative because the demand for one good moves in the opposite direction of the price change of the other good.

An Increase in the Price of One Good Leads to a Decrease