Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A positive cross price elasticity indicates that the goods are substitutes.
B
A negative cross price elasticity indicates that the goods are complements.
C
A zero cross price elasticity suggests that the goods are unrelated.
D
A high positive cross price elasticity means the goods have a strong relationship regardless of their pricing.
E
If the price of good A increases and the quantity demanded of good B decreases, then they are complements.
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 two goods are substitutes, like butter and margarine, an increase in the price of butter may lead to an increase in the demand for margarine. On the other hand, if two goods are complements, like coffee and sugar, a rise in the price of coffee might cause a decrease in the demand for sugar. Therefore, a positive cross price elasticity indicates substitutes, while a negative value indicates complements. This concept helps businesses understand how the price changes of one product can affect the sales of another product.
Detailed Explanation
Other options are incorrect because A positive value means the goods are substitutes, not that they are unrelated; A negative value shows that the goods are complements, meaning they are used together.
Key Concepts
Cross Price Elasticity of Demand
Substitutes and Complements
Consumer Behavior
Topic
Cross Price Elasticity of Demand
Difficulty
hard level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.