The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4 implies that
A)natural gas and fuel oil are substitutes.
B)natural gas is a normal good.
C)the quantity of natural gas demanded will decrease by 1.6% when the price of fuel oil decreases by 4%.
D)both a and c

Question

Quizplus · Accepted Answer

The positive cross-price elasticity of 0.4 indicates that natural gas and fuel oil are substitutes, as the demand for one increases when the price of the other increases. Additionally, a 0.4 elasticity means a 4% decrease in the price of fuel oil leads to a 1.6% increase (not decrease) in the demand for natural gas, which aligns with choice C when considering the direction of change correctly.

The Fact That the Cross-Price Elasticity of Natural Gas with Respect