Question

If the cross-price elasticity of demand between Good A and Good B is 3, the price of Good B increases, and the price elasticity of demand for Good B is inelastic, we can expect to see a ________ change in the quantity demanded for Good A.

a.positive, zero

b.positive, small

c.positive, large

d.negative, one-for-one negative,

e.infinite

Answer 1

Cross-price elasticity of demand between Good A and Good B = 3. This implies that Good A and Good B are substitutes because cross-price elasticity is positive.

If price of good B increases , and elasticity of demand for Good B is inelastic. Then , quantity demanded for good A would increase. Then , we could expect to see a positive , large change in the quantity demanded for good A. Because quantity demanded for good B changes by a small amount and therefore , demand for good A changes by a large amount because cross-elasticity of demand is 3 . Hence, option(C) is correct.