The sign of a cross-price elasticity indicates that two goods are _____, but the sign of the income elasticity of demand:
A) complements or substitutes; never changes.
B) complements or substitutes; indicates that a good is inferior or normal.
C) inferior or normal; indicates that a good is a luxury or a necessity.
D) luxuries or necessities; indicates that a good is inferior or normal.

Question

Quizplus · Accepted Answer

The sign of cross-price elasticity can indicate whether two goods are complements (negative sign) or substitutes (positive sign). The sign of income elasticity of demand indicates whether a good is normal (positive sign) or inferior (negative sign).

The Sign of a Cross-Price Elasticity Indicates That Two Goods