What can the cross-price elasticity of demand tell us
A)whether goods are normal or inferior
B)whether goods are elastic or inelastic
C)whether goods are luxuries or necessities
D)whether goods are complements or substitutes

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of demand for one good to changes in the price of another good. If the cross-price elasticity is positive, it means that the two goods are substitutes (a price increase in one leads to an increase in demand for the other). If the cross-price elasticity is negative, it means that the two goods are complements (a price increase in one leads to a decrease in demand for the other). Therefore, the cross-price elasticity can tell us whether goods are complements or substitutes.

What Can the Cross-Price Elasticity of Demand Tell Us