Question

If the cross-price elasticity of demand between two goods is

a. a price change for one good will be exactly offset by a price change for the other
b. there is no income effect between the two goods
c. the demand for each good is price elastic
d. the demand for each good is price inelastic
e. neither demand curve would shift following a change in the price of one of the goods

Answer 1

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. Positive cross-price elasticity indicates substitute goods, while negative cross-price elasticity indicates complementary goods.

Step-by-step explanation:

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. If the cross-price elasticity of demand between two goods is positive, it means that they are substitute goods. In this case, a price increase in one good will result in an increase in the quantity demanded of the other good. On the other hand, if the cross-price elasticity of demand is negative, it means that the goods are complementary. A price increase in one good will lead to a decrease in the quantity demanded of the other good.