Question

Which would be most relevant to a positive sign (+) on a cross-price elasticity ? Group...

Which would be most relevant to a positive sign (+) on a cross-price elasticity ?

Group of answer choices

an inferior good.

a Giffen good.

a substitute good.

a normal good.

a complementary good.

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Answer #1

Answer is C. Substitute goods.

Cross elasticity measures the changes in quantity demanded of one good due to changes in prices of other good.
Cross price elasticity = % change in quantity demanded of good 1/ % change in price of good 2.
In case of substitute good increase in price of good 2 will increase the quantity demanded of good 1 , so there will be positive cross elasticity.
Substitute goods are those goods which could be used in place of one another like tea and coffee.

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