If the cross price elasticity of two goods is -3.5,then
A) these two products are relatively elastic substitutes.
B) these two products are relatively inelastic substitutes.
C) these two products are relatively elastic complements.
D) these two products are relatively inelastic complements.

Question

Quizplus · Accepted Answer

The negative sign of the cross price elasticity (-3.5) indicates that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the demand for the other good. The magnitude (3.5) suggests that they are relatively elastic, as a relatively small change in the price of one good leads to a relatively large change in the demand for the other good.

If the Cross Price Elasticity of Two Goods Is -3