The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true?
A) The demand for goods X and Y is inelastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income inelastic.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. A positive cross-price elasticity (greater than 0) indicates that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the demand for the other good.

The Cross-Price Elasticity of Demand Between Good X and Good