Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It indicates that both goods are substitutes and the quantity demanded of the other good will increase.
B
It shows that both goods are complements and the quantity demanded of the other good will decrease.
C
It demonstrates that the quantity demanded of both goods will remain unchanged.
D
It suggests that both goods are independent and the price change of one has no effect on the other.
Understanding the Answer
Let's break down why this is correct
Answer
Cross-price elasticity of demand measures how the quantity demanded of one good changes when the price of another good changes. If the price of good A increases and the quantity demanded of good B also increases, it means that A and B are substitutes. For example, if the price of coffee rises, people might buy more tea instead, showing a positive cross-price elasticity. Conversely, if the price of good A increases and the quantity demanded of good B decreases, then A and B are complements. An example of this is when the price of printers goes up, leading to fewer people buying ink cartridges, indicating a negative cross-price elasticity.
Detailed Explanation
When the price of one good goes up, people often buy more of a similar good instead. Other options are incorrect because This answer confuses substitutes with complements; This answer suggests that nothing changes, which isn't true.
Key Concepts
Demand curve
Consumer choice
Demand relationship
Topic
Cross-Price Elasticity of Demand
Difficulty
hard level question
Cognitive Level
understand
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