Suppose that a 10% increase in the price of product A results in a 12% decrease in the quantity demanded of product B. Which of the following statements is correct?
A)The cross elasticity of demand coefficient between the two products is negative and the products are substitutes.
B)The cross elasticity of demand coefficient between the two products is negative and the products are complements.
C)The cross elasticity of demand coefficient between the two products is positive and the products are complements.
D)The cross elasticity of demand coefficient between the two products is positive and the products are substitutes.

Question

Quizplus · Accepted Answer

The cross elasticity of demand is negative when an increase in the price of one product leads to a decrease in the demand for another product, indicating that the products are complements.

Suppose That a 10% Increase in the Price of Product