Suppose Target decided to lower the price on all shirts as part of its Back to School promotion. The cross elasticity of demand between pants and shirts is negative. Lowering the price on shirts will ________ the demand for pants because shirts and pants are ________.
A) increase; substitutes
B) decrease; substitutes
C) increase; complements
D) decrease; complements

Question

Quizplus · Accepted Answer

The cross elasticity of demand is negative, indicating that shirts and pants are complements. Lowering the price of shirts will increase the demand for pants.

Suppose Target Decided to Lower the Price on All Shirts