Question

Suppose that a decrease in the price of cheese (A) will lead to an increase in the demand for crackers (B). What is this relationship called?

a. complementary
b. price–quantity

c. substitute

d. demand

Answer 1

When we have to find the relationship between two type of goods then we use a cross price elasticity of demand

If the cross price elasticity of demand is positive then the two goods are substitutes in nature and if the value is negative then the two goods are complementary in nature

Substitutes are those good which can replace each other

For example tea and coffee

Complements are those good which complete each other

for example bread and butter

So here we can see that decrease in price of cheese leads to increase the demand of crackers which clearly shows that both of them are complements to each other

Hence the answer is option A