Whether a cross-price elasticity of demand is positive or negative:
A)tells us whether the goods are substitutes or complements.
B)tells us whether the elasticity is reported in absolute value.
C)tells us whether the good is elastic or inelastic.
D)None of these is true.

Question

Quizplus · Accepted Answer

The sign (positive or negative) of cross-price elasticity of demand indicates whether the goods are substitutes or complements. A positive cross-price elasticity suggests that the two goods are substitutes, while a negative cross-price elasticity suggests that they are complements. The other options are not related to the sign of cross-price elasticity.

Whether a Cross-Price Elasticity of Demand Is Positive or Negative