The cross-price elasticity of demand is used to determine whether:
A)a product is an inferior or 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

The cross-price elasticity of demand is used to determine whether:​
A)a product is an inferior or 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.

Quizplus · Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. If the cross-price elasticity is positive, then the two goods are substitutes, meaning that a higher price for one good will cause consumers to switch to the other good, leading to an increase in the quantity demanded of the other good. If the cross-price elasticity is negative, then the two goods are complements, meaning that a higher price for one good will cause a decrease in the quantity demanded of both goods. Therefore, the correct answer is (C) two products are substitutes or complements.

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

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