Question

When the cross-price elasticity E_PX = -3:

a. demand rises by 3% with a 1% increase in the price of X

b. the quanitty demanded decreases by 3% with a 1% increase in the price of X

c. the quantity demanded rises by 1% with a 3% increase in the price of X

d. demand decreases by 3% with a 1% increase in the price of X

Answer 1

Answer : When the cross price elasticity EPX =-3 it means that the goods are complementary. As cross price elasticity measured the change in the quantity demanded for a good to change in the price of another good. The correct option is B as it shows that the quantity demanded decreases by 3% with 1% increase in the price of X. It means that as quantity demand decreases of one good as with increase the price of another good which shows that both gooda has been used together to make the effective need.