Suppose inter-city bus travel is a substitute for transportation by train. Which of the following could then be TRUE?
A) The cross elasticity between bus and train travel could equal 0.65.
B) The cross elasticity between bus and train travel could equal 1.0.
C) The cross elasticity between bus and train travel could equal 1.25.
D) All of the above could be true.

Question

Quizplus · Accepted Answer

The cross elasticity of demand measures how the quantity demanded of one good responds to a price change in another good. For substitutes, the cross elasticity is positive, indicating that an increase in the price of one leads to an increase in the demand for the other. All given values (0.65, 1.0, 1.25) are positive, so they all could be true for substitutes.

Suppose Inter-City Bus Travel Is a Substitute for Transportation by Train