Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is
A) negative, and therefore these goods are substitutes.
B) negative, and therefore these goods are complements.
C) positive, and therefore these goods are substitutes.
D) positive, and therefore these goods are complements.

Question

Quizplus · Accepted Answer

The cross elasticity of demand is negative, indicating that as the price of good Y increases, the demand for good X decreases, which means they are complementary goods.

Suppose That a 20 Percent Increase in the Price of Normal