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We are looking at the relationship between goods A and B. If the cross price elasticity of demand for good A is 2.37 and the price of A goes up, the demand for B will?

User Jovanni
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Final answer:

If the cross-price elasticity of demand for good A is 2.37 and the price of A goes up, the demand for good B will likely increase as they are substitute goods, with consumers turning to B as a more affordable alternative to A.

Step-by-step explanation:

The cross-price elasticity of demand helps us understand the relationship between two goods. When the cross-price elasticity of demand for good A is positive, like the given value 2.37, it indicates that goods A and B are substitute goods. Therefore, if the price of good A goes up, the demand for good B will likely increase because consumers will look for a cheaper alternative to good A, which in this case is good B. This positive cross-price elasticity signifies that the two goods are responsive to price changes, meaning the demanded quantity of good B will respond notably to a change in price of good A.

User Avery
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