Whether a cross-price elasticity of demand is positive or negative indicates whether the:
A) goods are substitutes or complements.
B) elasticity is reported in absolute value.
C) good's demand is elastic or inelastic.
D) good is a luxury or a necessity.

Question

Quizplus · Accepted Answer

The sign of cross-price elasticity of demand indicates whether goods are substitutes or complements. A positive elasticity indicates that the goods are substitutes, meaning that an increase in the price of one good results in an increase in the demand for the other, while a negative elasticity indicates that the goods are complements, meaning that an increase in the price of one good results in a decrease in the demand for the other.

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