Question

A positive Exy when calculating the cross elasticity of demand tells us that the products involved are ______(substitute goods OR complementary goods), while a negative Exy tells us the products are _______(substitute goods OR complementary goods).

Answer 1

A positive Exy indicates substitute goods, while a negative Exy indicates complementary goods.

Step-by-step explanation:

The cross elasticity of demand helps us understand the relationship between two goods when there is a change in the price of one of them. If the cross elasticity of demand (Exy) is positive, it indicates that the products involved are substitute goods. This means that when the price of one good increases, the quantity demanded of the other good also increases. On the other hand, if the Exy is negative, it means that the products are complementary goods. This implies that when the price of one good increases, the quantity demanded of the other good decreases.