Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They are substitutes.
B
They are complements.
C
They are unrelated.
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 A and B is positive, it means that the two goods are substitutes. This means that if the price of good A goes up, people will buy more of good B instead, because they see B as a similar option. For example, if the price of coffee increases, some people might choose to drink tea instead, since both are beverages that can serve a similar purpose. This positive relationship shows how the demand for one good can be affected by the price change of another good. Essentially, when one becomes more expensive, the other becomes more attractive to consumers.
Detailed Explanation
When the cross price elasticity is positive, it means that if the price of one good goes up, people buy more of the other good. Other options are incorrect because Some might think that a positive relationship means the goods work well together; It's easy to think that a positive number means no connection.
Key Concepts
economic implications
interpretation of results
Topic
Cross Price Elasticity of Demand
Difficulty
medium level question
Cognitive Level
understand
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