Asked by Ricky Moore on May 16, 2024
Verified
The cross-price elasticity of demand of substitute goods is:
A) less than 0.
B) greater than 0.
C) equal to 0.
D) impossible to determine without more information.
Cross-Price Elasticity
An assessment of how the demand for one product adjusts in response to price variations of a different product.
Substitute Goods
Goods that can be used in place of each other, where the increase in the price of one leads to an increase in the demand for the other.
- Internalize the principle of cross-price elasticity of demand and its application in establishing the interdependence between two goods (substitutes or complements).
- Distinguish between substitutes and complements based on cross-price elasticity of demand values.
Verified Answer
KK
Karrlana KinderMay 19, 2024
Final Answer :
B
Explanation :
The cross-price elasticity of demand measures the responsiveness of demand of one good to a change in the price of another good. Substitute goods are goods that can be used in place of each other, so if the price of one of the substitute goods increases, consumers will likely shift their purchases to the other substitute good. Therefore, the demand for the other substitute good will increase, resulting in a positive cross-price elasticity of demand. Therefore, the correct choice is B - greater than 0.
Learning Objectives
- Internalize the principle of cross-price elasticity of demand and its application in establishing the interdependence between two goods (substitutes or complements).
- Distinguish between substitutes and complements based on cross-price elasticity of demand values.