Question

The price of Good B increases by 4%, causing the quantity demanded of Good A to decrease by 6%. The cross-price elasticity of demand is ________, and the goods are ________.

Answer 1

The answer is -1.5 and complementary goods

Step-by-step explanation:

Cross price elasticity is the percentage decrease in quantity demanded divided percentage increase in price.

= -6/4

= - 1.5.

Because the sign is negative, the goods are complements. Complementary goods are directly related. As in they move in the same direction.

For example, car and fuel are complements. The increase in quantity demanded for car will increase the quantity demanded for fuel. Or if the price of car goes up, all things being equal, the quantity demanded of car will reduce and for fuel too.