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What is the relationship between ηxy and substitutes, complements, or independents in economics?

a) ηxy is positive for substitutes, negative for complements, and zero for independents.
b) ηxy is negative for substitutes, positive for complements, and zero for independents.
c) ηxy is zero for substitutes, positive for complements, and negative for independents.
d) ηxy is positive for substitutes, zero for complements, and negative for independents.

User Maep
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Final answer:

The correct relationship between cross-price elasticity of demand (ηxy) and the types of goods is: positive for substitutes, negative for complements, and zero for independents, corresponding to option a).

Step-by-step explanation:

The relationship between ηxy (cross-price elasticity of demand) and the economic concepts of substitutes, complements, or independents is crucial for understanding consumer behavior. Substitute goods have positive cross-price elasticities of demand; this means that if the price of good B increases, the quantity demanded of good A, which is a substitute, also increases (e.g., coffee and tea). Conversely, complement goods have negative cross-price elasticities of demand; an increase in the price of good B leads to a decrease in the quantity demanded of good A, which is a complement to B (e.g., coffee and sugar). Independent goods would have a cross-price elasticity of demand of zero, as they do not affect each other's consumption. Therefore, the correct relationship is: ηxy is positive for substitutes, negative for complements, and zero for independents, which corresponds to option a).

User Paresh Behede
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