Final answer:
The cross-price elasticity of demand measures ``the effect that change in one good's quantity on the quantity of another good.``
The answer is option ⇒A
Step-by-step explanation:
The cross-price elasticity of demand is a measure of how sensitive the quantity demanded of one good is to a change in the price of another good. It helps us understand the relationship between two different goods in terms of their demand.
Here's why:
The cross-price elasticity of demand is calculated by dividing the percentage change in the quantity demanded of one good by the percentage change in the price of another good. The resulting value can be positive, negative, or zero.
If the cross-price elasticity is positive, it indicates that the two goods are substitutes. This means that an increase in the price of one good leads to an increase in the quantity demanded of the other good, and vice versa. For example, if the price of coffee increases, the demand for tea might increase as consumers switch to a more affordable substitute.
If the cross-price elasticity is negative, it indicates that the two goods are complements. This means that an increase in the price of one good leads to a decrease in the quantity demanded of the other good, and vice versa. For example, if the price of hot dogs increases, the demand for hot dog buns might decrease as consumers are less willing to buy both together.
If the cross-price elasticity is zero, it indicates that the two goods are unrelated or independent. This means that the change in price of one good has no effect on the quantity demanded of the other good. For example, the price of gasoline might not have a significant impact on the demand for bread.
The answer is option ⇒A