ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Income elasticities are negative.
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Income elasticities are positive.
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Cross elasticities are positive.
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Cross elasticities are negative.
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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: -In economics, a complementary good or complement is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good’s demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased.
Detailed explanation-3: -Cross-Price Elasticity of Complementary Products If the price of one product increases, the demand for the complementary product decreases. To consumers, the increased joint cost will force them to buy less.
Detailed explanation-4: -If two goods are complements, an increase in the price of one will lead to a reduction in the demand for the other – the cross price elasticity of demand is negative.