Question

A study reports that the estimated cross price elasticity of demand between lettuce and tomatoes is -1.1 and the estimated income elasticity of demand for lettuce is 0.4. Which of the following is true?

Group of answer choices

Tomatoes and lettuce are substitutes, and lettuce is a normal good

Tomatoes and lettuce are substitutes, and lettuce is an inferior good.

Tomatoes and lettuce are complements, and lettuce is a normal good.

Tomatoes and lettuce are complements, and lettuce is an inferior good

Answer 1

Two goods which are  complement to each other have a negative cross elasticity of demand: as the price of good Y rises, the demand for good X falls.

A good is inferior when the income elasticity of demand is positive, income and demand are moving in same direction.

Since cross price elasticity between lettuce and Tomatoes is negative therefore they are complementary goods .

And since the the income elasticity of demand of tomatoes is positive therefore tomato is normal good.

OPTION C