The price of Good B increases by 4 percent, causing the quantity demanded of Good A to decrease by 6 percent. The cross-price elasticity of demand is ________, and the goods are ________.
A) 1.5; substitutes
B) -1.5; complements
C) 0.67; complements
D) -0.67; substitutes

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in quantity demanded of Good A divided by the percentage change in price of Good B. Here, it is -6% / 4% = -1.5. A negative cross-price elasticity indicates that the goods are complements.

The Price of Good B Increases by 4 Percent, Causing