Question

If the cross-price elasticity for two goods is equal to −4, then

A) the goods are normal goods.

B) the goods are inferior goods.

C) the goods are substitutes.

D) the goods are complements.

If the supply curve for housing is perfectly inelastic, a decrease in demand will cause the equilibrium price to:

A) rise and the equilibrium quantity to fall.

B) rise and the equilibrium quantity to stay the same.

C) fall and the equilibrium quantity to fall.

D) fall and the equilibrium quantity to stay the same.

Answer 1

Q1
Answer
Option D
the goods are complements
the cross-price elasticity is negative means the relationship between the price of a good and demand for the other good is negative as the price of one good increases the demand for other good decreases because both goods are consumed together and a consumer cannot afford the combination of the good so the demand for both decreases.
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Q2
Answer
Option D
D) fall and the equilibrium quantity to stay the same.
the supply curve is vertical at a fixed supply, so a decrease in demand decreases price but the quantity is the same