When two goods have positive cross elasticities of demand and negative income elasticities, they are:
A)Normal and substitutes.
B)Normal and complements.
C)Inferior and substitutes.
D)Inferior and complements.

Question

When two goods have positive cross elasticities of demand and negative income elasticities, they are:
A)​Normal and substitutes.
B)​Normal and complements.
C)​Inferior and substitutes.
D)​Inferior and complements.

Quizplus · Accepted Answer

When two goods have positive cross elasticities of demand, it suggests that they are substitutes, i.e., if the price of one good increases, the demand for the other good will increase. When they have negative income elasticities, it implies that they are inferior goods, i.e., as income increases, the demand for these goods decreases. Therefore, the best choice would be inferior and substitutes, which is option C.

When Two Goods Have Positive Cross Elasticities of Demand and Negative