GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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if the price of the product increases, the demand for the other product will decreases
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if the price of one product decreases, the demand for the 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: -Whereas, if the cross-price elasticity of demand is a negative value, the two goods or services would be complementary goods or services.
Detailed explanation-3: -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. For instance, butter and margarine are substitutes.
Detailed explanation-4: -If price elasticity is greater than 1, the good is elastic; if less than 1, it is inelastic. If a good’s price elasticity is 0 (no amount of price change produces a change in demand), it is perfectly inelastic.
Detailed explanation-5: -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.