BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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if the price of one product increase, the demand for other product will increases
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if the price of one product decrease, the demand for other product will decreases
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if the price of one product decreases, the demand for other product will increases
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none of the above
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Detailed explanation-1: -The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases. Alternatively, the cross elasticity of demand for complementary goods is negative.
Detailed explanation-2: -The cross elasticity of demand for two complementary products is always negative. Again, the stronger the complementary relationship between two products, the more negative the cross elasticity coefficient would be. For instance, if the price of XBOX increases, the demand for XBOX compatible games would reduce.
Detailed explanation-3: -The cross price elasticity of demand will be negative when two goods are complements. Complementary products are goods that are consumed together.
Detailed explanation-4: -A price increase of a complementary product will lead to lower demand or negative cross-price elasticity, and a price increase in a substitute product will lead to increased demand or a positive cross-price elasticity. Unrelated products have zero cross-price elasticity.
Detailed explanation-5: -A positive cross-price elasticity of demand between two products exhibits that the products are substitutes. This scenario implies that the price of one product has a positive relationship with the quantity demanded of another product.