The cross-elasticity of demand:
A) reveals whether the good is income elastic.
B) reveals whether the good is a necessity.
C) reveals whether the good is important.
D) reveals whether the good is a substitute.

Question

Quizplus · Accepted Answer

The cross-elasticity of demand measures the degree to which the demand for one good is affected by a change in the price of another good. If the cross-elasticity of demand between two goods is positive, it means that they are substitutes, meaning that if the price of one good increases, the demand for the other good will increase. Therefore, the cross-elasticity of demand reveals whether the good is a substitute.

The Cross-Elasticity of Demand