Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They are substitutes.
B
They are unrelated.
C
They are complementary goods.
D
They are inferior goods.
Understanding the Answer
Let's break down why this is correct
Answer
When the cross-price elasticity of demand between two goods is negative, it means that the two goods are complementary. This indicates that when the price of one good goes up, the demand for the other good tends to go down. For example, if the price of coffee increases, people might buy less coffee, which could lead to a decrease in the demand for creamers, a common addition to coffee. This relationship happens because consumers often use these goods together, so a rise in the price of one makes it less attractive to buy the other. Thus, negative cross-price elasticity shows that the two products are linked in a way that affects their demand based on each other's prices.
Detailed Explanation
A negative cross-price elasticity means that when the price of one good goes up, the demand for the other good goes down. Other options are incorrect because Some might think that negative means they replace each other; It's easy to think that negative means no connection.
Key Concepts
cross-price elasticity
interdependence of goods
elasticity of demand
Topic
Complementary Goods and Demand
Difficulty
hard level question
Cognitive Level
understand
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