The cross-price elasticity of demand is used to determine whether _____
A)a product is an inferior or a normal good.
B)a product is a necessity or a luxury.
C)two products are substitutes or complements.
D)price and total revenue are directly or inversely related.
E)the product's demand curve is linear.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the price of another good. If the cross-price elasticity of demand is positive, it indicates that the two goods are substitutes, as an increase in the price of one good will lead consumers to switch to the other good. If the cross-price elasticity of demand is negative, it indicates that the two goods are complements, as an increase in the price of one good will decrease the demand for both goods. Therefore, the cross-price elasticity of demand helps determine whether two products are substitutes or complements.

The Cross-Price Elasticity of Demand Is Used to Determine Whether