Suppose the cross elasticity of demand for two goods,X and Y,is positive.If the price of Y falls,then quantity demanded will
A)rise for both goods.
B)fall for both goods.
C)rise for X and fall for Y.
D)fall for X and rise for Y.
E)remain the same for both goods.

Question

Quizplus · Accepted Answer

If the cross elasticity of demand for X and Y is positive, it means that the two goods are substitutes. So, if the price of Y falls, consumers are likely to switch from X to Y leading to a fall in the demand for X and a rise in the demand for Y, which is reflected in choice D.

Suppose the Cross Elasticity of Demand for Two Goods,X and Y,is