Question:
The cross price elasticity of demand
(1) can indicate if a good is a necessity or an inferior.
(2) is closer to zero if the two goods are closely related.
(3) is greater than zero if the two goods are substitutes.
(4) is always negative because of the Law of Demand.
(5) is greater than zero if the two goods are complements.
Correct Answer:
(3)
Answer Explanation:
Cross-price elasticity measures how the demand for one good reacts to the price change of another. For substitutes, if the price of Good A rises, the demand for Good B increases. This positive relationship means the cross-price elasticity is greater than zero.
Topic: Elasticity Year: 2024
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