If a rise in the price of good B increases the demand for good A,then
A)A and B are substitutes and the cross elasticity of demand for good A with respect to the price of good B is positive.
B)A and B are complements.
C)the cross elasticity of demand between A and B is 1.
D)A and B are substitutes and the cross elasticity of demand for good A with respect to the price of good B is negative.
E)the demand for A is price elastic.

Question

Quizplus · Accepted Answer

If the price of a substitute good (in this case, good B) increases, consumers will likely switch to purchasing the relatively cheaper alternative (in this case, good A), increasing the demand for good A. The positive cross elasticity of demand reflects this relationship between the two goods.

If a Rise in the Price of Good B Increases