To say that two goods are substitutes, their cross price elasticities of demand should be:
A) less than zero.
B) negative, yet almost equal to zero.
C) equal to zero.
D) greater than zero.

Question

Quizplus · Accepted Answer

Cross price elasticity of demand measures the responsiveness of demand for one good to a change in the price of another related good. If the cross price elasticity of demand is greater than zero, it means that the two goods are substitutes. This is because an increase in the price of one good will lead to an increase in demand for the other good. Therefore, the best choice is D, which states that the cross price elasticities of demand between two substitute goods are greater than zero.

To Say That Two Goods Are Substitutes, Their Cross Price