Two goods are close substitutes if:
A)one good is own- price inelastic and the other is own- price elastic.
B)the cross- price elasticities of demand are low.
C)they are both inferior goods.
D)the cross- price elasticities of demand are large.

Question

Quizplus · Accepted Answer

Close substitutes have a high cross-price elasticity of demand as consumers are likely to switch to the substitute good in response to a small change in the price of the original good. Therefore, option D, which states that the cross-price elasticities of demand are large, is the best choice.

Two Goods Are Close Substitutes If