Question
The cross price elasticity of demand between good A and good B is +0.8. Goods A and B
are;
a. substitute goods
b. complementary goods
c. luxury goods
d. income goods
And briefly explain your answer
are;
a. substitute goods
b. complementary goods
c. luxury goods
d. income goods
And briefly explain your answer
Answers
GPT-4o mini
The correct answer is **a. substitute goods**.
**Explanation:** The cross price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. A positive cross price elasticity (in this case, +0.8) indicates that as the price of good B increases, the demand for good A also increases. This behavior is characteristic of substitute goods, which are products that can replace each other. When the price of one substitute rises, consumers may switch to the other substitute, leading to an increase in its demand. If the cross price elasticity were negative, it would indicate that the goods are complementary (used together), but since it is positive, A and B are substitutes.
**Explanation:** The cross price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. A positive cross price elasticity (in this case, +0.8) indicates that as the price of good B increases, the demand for good A also increases. This behavior is characteristic of substitute goods, which are products that can replace each other. When the price of one substitute rises, consumers may switch to the other substitute, leading to an increase in its demand. If the cross price elasticity were negative, it would indicate that the goods are complementary (used together), but since it is positive, A and B are substitutes.