Asked by Nicole Behne on May 08, 2024
Verified
A cross elasticity of demand coefficient of +2.5 indicates that the two products are substitutes.
Cross Elasticity
The responsiveness of the demand for one good to a change in the price of another good.
Coefficient
A numerical or constant quantity placed before and multiplying the variable in an algebraic expression.
Substitutes
Goods or services that can be used in place of each other, where an increase in price of one leads to an increase in demand for the other.
- Grasp the concept of cross elasticity of demand and how it relates to substitutes and complements.
Verified Answer
MA
MOHAMED ALALIMay 09, 2024
Final Answer :
True
Explanation :
A positive cross elasticity of demand indicates that as the price of one good increases, the demand for the other good also increases, suggesting that the two goods are substitutes. A coefficient of +2.5 shows a strong substitutability between the two products.
Learning Objectives
- Grasp the concept of cross elasticity of demand and how it relates to substitutes and complements.