If two goods, X and Y, have a positive cross- elasticity of demand, then we know that they
A) each have a price elasticity greater than one.
B) are complements.
C) are substitutes.
D) are both inferior goods.
E) are both normal goods.

Question

Quizplus · Accepted Answer

A positive cross-elasticity of demand indicates that as the price of one good increases, the demand for the other good also increases. This only happens when the two goods are substitutes, meaning they are seen as interchangeable in the eyes of consumers. Therefore, the correct answer is C.

If Two Goods, X and Y, Have a Positive Cross-