If both of two goods have price elasticities of demand, price elasticities of supply, income elasticities of demand and cross elasticities of demand all equal to 2.0:
A)They are both normal and substitutes.
B)They are both normal and complements.
C)They are both inferior and substitutes.
D)They are both inferior and complements.

Question

If both of two goods have price elasticities of demand, price elasticities of supply, income elasticities of demand and cross elasticities of demand all equal to 2.0:
A)​They are both normal and substitutes.
B)​They are both normal and complements.
C)​They are both inferior and substitutes.
D)​They are both inferior and complements.

Quizplus · Accepted Answer

Since both goods have price elasticities of demand and supply, it means that a change in price will lead to a proportional change in demand and supply. This indicates that both goods are both normal goods.
Additionally, since both goods have a cross elasticity of demand of 2, it means that they are substitutes. This is because a change in the price of one good will result in a proportional change in the demand for the other good. Therefore, the correct answer is A) They are both normal and substitutes.

If Both of Two Goods Have Price Elasticities of Demand