Which of the following could be the cross-price elasticity of demand for two goods that are complements?

A) 0
B) 0.2
C) 1.4
D) -1.3

Question

Which of the following could be the cross-price elasticity of demand for two goods that are complements?

A) 0
B) 0.2
C) 1.4
D) -1.3

Quizplus · Accepted Answer

When two goods are complements, they have a negative cross-price elasticity of demand, which means that as the price of one good increases, the demand for the other good will decrease. The cross-price elasticity of demand is calculated as the percentage change in quantity demanded for one good divided by the percentage change in the price of the other good. Because complements have a negative relationship, the cross-price elasticity of demand will be negative. The value can be any negative number but is likely to be smaller in magnitude than a substitutive relationship because the effect of price on complementary goods is generally smaller than on substitutes. A cross-price elasticity of demand of 0 indicates that there is no relationship between the two goods, which is not the case with complements. Therefore, option A is the best choice.

Which of the Following Could Be the Cross-Price Elasticity of Demand