Question

Cross-price elasticity of demand is a. negative for complementary goods. b. negative for substitute goods. c....

Cross-price elasticity of demand is

a. negative for complementary goods.

b. negative for substitute goods.

c. positive for general goods.

d. unitary for secondary goods.

Homework Answers

Answer #1

Cross price elasticity of demand is given by the percentage in quantity demanded due to a percentage change in the price of its related goods.

eC = % change in quantity demanded / % change in price of related goods

For complementary goods, ec < 0 which means that % change in quantity demanded is less than % change in price of related goods.

For substitute goods, ec > 0 which means that % change in quantity demanded is greater than % change in price of related goods.

The answers is (a) negative for complementary goods.

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