The cross-price elasticity of demand of substitute goods is:
A)less than 0.
B)greater than 0.
C)equal to 0.
D)impossible to determine without more information.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of demand of one good to a change in the price of another good. Substitute goods are goods that can be used in place of each other, so if the price of one of the substitute goods increases, consumers will likely shift their purchases to the other substitute good. Therefore, the demand for the other substitute good will increase, resulting in a positive cross-price elasticity of demand. Therefore, the correct choice is B - greater than 0.

The Cross-Price Elasticity of Demand of Substitute Goods Is