BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Positive
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Neutral
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Negative
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Unitary
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Detailed explanation-1: -We determine whether goods are complements or substitutes based on cross price elasticity-if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.
Detailed explanation-2: -A negative cross elasticity of demand indicates that the demand for good A will decrease as the price of B goes up. This suggests that A and B are complementary goods, such as a printer and printer toner.
Detailed explanation-3: -The cross price elasticity of demand will be negative when two goods are complements.
Detailed explanation-4: -If two commodities are complements then as the price of one increased the quantity of the other one decreases and vice versa, thus due to thus negative relationship the cross elasticity of demand is always negative.
Detailed explanation-5: -In case of complementary goods, negative cross elasticity of demand exists. This is because change in the price of one complementary good leads to the demand of the other complementary good to move in the opposite direction.