If the cross price elasticity measured between items A and B is positive,the two products are referred to as:
A) complements
B) substitutes
C) inelastic as compared to each other
D) both b and c
E) a,b,and c

Question

Quizplus · Accepted Answer

If the cross price elasticity measured between items A and B is positive, it means that an increase in the price of item A will lead to an increase in the demand for item B. This indicates that item A and B are substitutes, meaning that they can be used in place of each other. The fact that they are inelastic as compared to each other is not necessarily true and is not a characteristic of substitutes. Complements are characterized by negative cross price elasticity, meaning that an increase in the price of item A will lead to a decrease in the demand for item B.

If the Cross Price Elasticity Measured Between Items a and B