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 independent goods
D
They have no relationship
Understanding the Answer
Let's break down why this is correct
Answer
When the cross price elasticity of demand between two goods is positive, it means that the two goods are substitutes for each other. This occurs because when the price of one good goes up, people tend to buy more of the other good instead, since they can replace the more expensive option with a cheaper one. For example, if the price of coffee increases, some people might buy more tea as an alternative. This shows that the demand for one good rises when the price of the other good rises, indicating they serve similar purposes for consumers. Thus, a positive cross price elasticity reflects a competitive relationship between the two goods.
Detailed Explanation
When two goods are substitutes, if the price of one goes up, people buy more of the other. Other options are incorrect because Some might think that if goods are used together, a price increase would lead to more demand; Independent goods don't affect each other's demand.
Key Concepts
positive elasticity
Topic
Cross Price Elasticity of Demand
Difficulty
easy level question
Cognitive Level
understand
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