Asked by Jamie Flexer on Jul 28, 2024
Verified
The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true?
A) The demand for goods X and Y is inelastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income inelastic.
Cross-price Elasticity
A measure of how the quantity demanded of one good responds to a change in the price of another good, indicating substitutability or complementarity.
Substitutes
Products or services that can be used in place of each other. Higher the similarity, the more easily consumers can switch between them, affecting demand.
- Differentiate substitutes from complements by evaluating their respective cross-price elasticity indicators.
Verified Answer
ZK
Zybrea KnightAug 02, 2024
Final Answer :
B
Explanation :
The cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. A positive cross-price elasticity (greater than 0) indicates that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the demand for the other good.
Learning Objectives
- Differentiate substitutes from complements by evaluating their respective cross-price elasticity indicators.
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