The cross-price elasticity of demand can tell us whether goods are
A)normal or inferior.
B)elastic or inelastic.
C)luxuries or necessities.
D)complements or substitutes.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. If the cross-price elasticity is positive, this means that the two goods are substitutes, meaning that a price increase of one good will lead to an increase in demand for the other good. On the other hand, a negative cross-price elasticity indicates that the two goods are complements, meaning that a price increase of one good will lead to a decrease in demand for the other good. Therefore, the best choice is D, which refers to whether goods are complements or substitutes.

The Cross-Price Elasticity of Demand Can Tell Us Whether Goods