If an economist wants to know if two goods are complements or substitutes, which is the appropriate elasticity to calculate?
A) elasticity of supply
B) price elasticity of demand
C) cross-price elasticity of demand
D) income elasticity of demand

Question

Quizplus · Accepted Answer

Cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. If the cross-price elasticity is positive, the goods are substitutes (as the price of one goes up, people buy more of the other). If it's negative, the goods are complements (as the price of one goes up, demand for both falls).

If an Economist Wants to Know If Two Goods Are