Question

The cross-price elasticity of demand between good A and good B is positive. Are good A...

The cross-price elasticity of demand between good A and good B is positive. Are good A and good B complements or substitutes?

Homework Answers

Answer #1

Cross price elasticity of demand is the relationship between two type of goods that whether they are substitutes are complements to each other

Substitutes are those goods which can replace each other

For example tea and coffee

Complements are those good which complete each other

For example pen and paper

If the value of cross price elasticity of demand is positive then the two goods are said to be substitute to each other and if it is negative then the two goods are complements to each other

Answer is substitutes

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