ECONOMICS
CONSUMERS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It can indicate if a good is a necessity or a luxury
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It is greater than zero for two goods that are substitutes
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It is always negative because demand curves are downward sloping
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It is close to zero if the two goods are closely related
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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.
Detailed explanation-2: -Answer and Explanation: C. The cross-price elasticity of demand between complements is negative. This statement is true.
Detailed explanation-3: -If the cross elasticity of demand of goods is greater than zero, the goods are said to be substitutes. With goods that have a cross elasticity of demand equal to zero, the two goods are independent of each other.
Detailed explanation-4: -Here, it is given that cross-price elasticity between two goods is approximately equal to zero. So, it can be stated that the quantity demanded of one product doesn’t change as the price of other products changes; hence, they are considered independent of each other.