Suppose the cross- elasticity of demand for two goods, domestic cheese and imported cheese, is positive. If the price of imported cheese falls, then quantity demanded will
A) rise for domestic cheese and fall for imported cheese.
B) rise for both domestic and imported cheese.
C) fall for domestic cheese and rise for imported cheese.
D) fall for both domestic and imported cheese.
E) not enough information to answer this question.

Question

Quizplus · Accepted Answer

If the cross- elasticity of demand for two goods is positive, it means that the goods are substitutes. Therefore, if the price of imported cheese falls (making it relatively cheaper compared to domestic cheese, which is a substitute), consumers will tend to buy more imported cheese and less domestic cheese, leading to a fall in the quantity demanded of domestic cheese and a rise in the quantity demanded of imported cheese.

Suppose the Cross- Elasticity of Demand for Two Goods, Domestic