ECONOMICS (CBSE/UGC NET)

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: -If the income elasticity of demand is a positive number, this indicates the good is a normal good. If the cross price elasticity of demand for two goods is a negative number, this indicates the two goods are complements.

Detailed explanation-3: -The correct option is c. To check whether given goods are substitutes or complements, economists generally estimate the cross-price elasticity of demand. The cross-price elasticity of demand measures the impact of change in the price of one product on the demand for another product.

Detailed explanation-4: -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-5: -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. If two goods are unrelated, a change in the price of one will not affect the demand for the other – the cross price elasticity of demand is zero.