What would be the cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a mobile phone provider?
A)Positive if subscribers consider the services substitutes for each other.
B)Positive if subscribers consider the services complements to each other.
C)Negative if subscribers consider the services substitutes for each other.
D)Negative no matter if subscribers consider the services substitutes or complements for each other.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand between two goods is positive if the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the demand for the other good. In this case, if subscribers see unlimited texting and unlimited call minutes as substitutes (e.g., choosing to text more if calling becomes more expensive), the cross-price elasticity would be positive.

What Would Be the Cross-Price Elasticity of Demand Between an Unlimited