📚 Learning Guide
Elasticity Formulas and Relationships
medium

If the cross-price elasticity of demand between two goods A and B is positive, what does this imply about the nature of these goods when demand for good A is inelastic?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Goods A and B are substitutes and demand for A is sensitive to price changes

B

Goods A and B are substitutes but demand for A is not sensitive to price changes

C

Goods A and B are complements and demand for A is sensitive to price changes

D

Goods A and B are complements but demand for A is not sensitive to price changes

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 as the price of good B increases, the demand for good A also increases. This indicates that goods A and B are substitutes, meaning that if people find good B too expensive, they will buy more of good A instead. If the demand for good A is inelastic, it shows that changes in price have little effect on the quantity demanded; people will still buy it even if the price goes up. For example, if coffee (good A) has an inelastic demand and tea (good B) becomes more expensive, people might buy more coffee instead of tea, because they see coffee as a substitute. This relationship helps businesses understand how changes in the market can affect their products.

Detailed Explanation

When the cross-price elasticity is positive, it means that as the price of good A goes up, people buy more of good B. Other options are incorrect because This option suggests that demand for A is sensitive to price changes; This option claims A and B are complements, which means they are used together.

Key Concepts

cross-price elasticity of demand
implications of inelastic demand
Topic

Elasticity Formulas and Relationships

Difficulty

medium 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.