If the price of one good increases by 3 per cent and the quantity demanded of another good increases by 2 per cent, the cross elasticity is _______ and the two goods are _______ .
A) 2/3, substitutes
B) 3/2, complements
C) 3/2, substitutes
D) 2/3, complements

Question

Quizplus · Accepted Answer

Cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is 2%/3% = 2/3. Since the cross elasticity is positive, the goods are substitutes.

If the Price of One Good Increases by 3 Per