The cross-price elasticity of demand of products "M" and "N" is zero. This implies that "M" and "N" are
A) substitute products.
B) complementary products.
C) independent products.
D) unique goods, as the price elasticity of demand for one of them is zero.

Question

Quizplus · Accepted Answer

A cross-price elasticity of demand of zero means that the price of one product (e.g. M) has no effect on the demand for the other product (e.g. N), indicating that they are independent products. If two products were substitutes, an increase in the price of one product would lead to an increase in demand for the other product, resulting in a negative cross-price elasticity. If two products were complements, an increase in the price of one product would lead to a decrease in demand for the other product, resulting in a positive cross-price elasticity.

The Cross-Price Elasticity of Demand of Products "M" and "N