Suppose we find that the cross elasticities between two goods are relatively high, and their cross elasticities with goods outside the market are zero. From this we can conclude that these two goods
A) are produced by monopolies
B) have relatively high prices
C) are unrelated
D) have inelastic demand curves
E) belong to the same market

Question

Quizplus · Accepted Answer

High cross elasticities between two goods indicate that they are substitutes for each other, meaning a price change in one affects the demand for the other significantly. If their cross elasticities with goods outside their market are zero, it suggests these goods do not substitute for or compete with goods outside their market, implying they belong to the same market.

Suppose We Find That the Cross Elasticities Between Two Goods