The cross-price elasticity of demand between goods X and Y
A)measures the responsiveness of the quantity of X demanded to changes in the price of Y.
B)is the percentage change in the price of Y divided by the percentage change in the quantity of X demanded.
C)is greater than zero if X and Y are substitutes.
D)both a and c
E)all of the above

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity of one good (X) demanded to changes in the price of another good (Y). Therefore, option A is correct. The formula for cross-price elasticity of demand is the percentage change in the quantity of X demanded divided by the percentage change in the price of Y. Therefore, option B is incorrect. If X and Y are substitutes, meaning that they can be used in place of each other, a rise in the price of Y will cause a shift in demand towards X, and the cross-price elasticity of demand between the two goods will be positive. Therefore, option C is correct. Both option A and C are correct, so the answer is D.

The Cross-Price Elasticity of Demand Between Goods X and Y