If the cross-price elasticity between two goods is negative, the two goods are likely to be
A) substitutes.
B) complements.
C) necessities.
D) luxuries.

Question

Quizplus · Accepted Answer

If the cross-price elasticity between two goods is negative, it means that as the price of one good increases, the demand for the other good decreases. This is the case with complementary goods, such as gasoline and automobiles. As the price of gasoline goes up, the demand for automobiles decreases as people are less likely to purchase cars that they cannot afford to fill with gas. Therefore, if the cross-price elasticity between two goods is negative, the two goods are likely to be complements.

If the Cross-Price Elasticity Between Two Goods Is Negative, the Two