When the cross-price elasticity of demand is a large positive number,one can correctly conclude that:
A)the goods are normal goods.
B)the goods are inferior goods.
C)the goods are substitutes.
D)the goods are complements.
E)total revenue will increase when the price increases.

Question

Quizplus · Accepted Answer

A large positive cross-price elasticity of demand indicates that the two goods are related in such a way that if the price of one good increases, the quantity demanded of the other good increases. This is the characteristic of substitute goods, i.e., goods that can be used in place of each other, such as Coke and Pepsi or movie theaters and concerts. Normal goods are those whose demand increases as income increases, and inferior goods are those whose demand decreases as income increases. Complements are goods that are typically consumed together, such as bread and butter or cars and gasoline. Total revenue will increase when the price increases only for goods with an inelastic demand.

When the Cross-Price Elasticity of Demand Is a Large Positive