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 are inferior goods
Understanding the Answer
Let's break down why this is correct
Answer
A positive cross-price elasticity of demand means that when the price of one good increases, the demand for another good also increases. This usually happens when the two goods are substitutes, meaning that people can use one good instead of the other. For example, if the price of coffee goes up, people may buy more tea instead, leading to an increase in tea's demand. This relationship shows how consumers respond to price changes by switching between similar products. So, a positive cross-price elasticity indicates that the two goods are related in a way that they can replace each other in our choices.
Detailed Explanation
A positive cross-price elasticity means that when the price of one good goes up, the demand for the other good also goes up. Other options are incorrect because Some might think that a positive relationship means the goods work together, like peanut butter and jelly; Independent goods are not related at all.
Key Concepts
cross-price elasticity of demand
Topic
Elasticity Formulas and Relationships
Difficulty
easy level question
Cognitive Level
understand
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