GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Zero
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Positive
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Negative
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None of these
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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: -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.
Detailed explanation-3: -If the goods are complements, their cross-price elasticity of demand is going to be negative. This is because a price change of Good A and quantity demanded of Good B move in the opposite direction: If the price of Good A increases, the quantity demanded of Good B decreases.
Detailed explanation-4: -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.