The cross price elasticity between A and B is 1.2. We can conclude that
A) goods A and B are substitutes.
B) goods A and B are complements.
C) goods A and B are unrelated.
D) goods A and B are perfect substitutes.

Question

Quizplus · Accepted Answer

A cross-price elasticity greater than 0 indicates that goods are substitutes. A cross-price elasticity of 1.2 suggests that a 1% increase in the price of good B leads to a 1.2% increase in the demand for good A. This positive relationship indicates that goods A and B are substitutes.

The Cross Price Elasticity Between a and B Is 1