Cross wage elasticities of demand are
A) always positive in magnitude.
B) always negative in magnitude.
C) either positive or negative in magnitude.
D) positive for gross complements, negative for gross substitutes.

Question

Quizplus · Accepted Answer

Cross wage elasticities of demand can have either positive or negative magnitude depending on whether the goods are substitutes or complements. If the goods are substitutes, an increase in the wage rate of one good will lead to an increase in the demand for the other good, resulting in a positive cross elasticity of demand. On the other hand, if the goods are complements, an increase in the wage rate of one good will decrease the demand for the other good, resulting in a negative cross elasticity of demand. Therefore, cross wage elasticities of demand can be either positive or negative in magnitude.

Cross Wage Elasticities of Demand Are