Question : If the cross elasticity of demand between two goods is negative, it means the goods are:
Option 1: Substitutes.
Option 2: Complements.
Option 3: Inferior goods.
Option 4: Normal goods.
Correct Answer: Complements.
Solution : The correct answer is (b) Complements.
When the cross elasticity of demand between two goods is negative, it indicates that the goods are complements. Complementary goods are those that are typically consumed together or used in conjunction with each other. The negative cross elasticity of demand implies an inverse relationship between the prices of the two goods and their quantity demanded. In other words, when the price of one complement increases, the quantity demanded of the other complement decreases.
For example, if the price of hot dogs (complement) increases, the quantity demanded of hot dog buns (complement) is likely to decrease. This negative relationship in the cross elasticity of demand between complementary goods reflects their interdependence in consumption patterns.
Question : If the cross elasticity of demand between two goods is zero, it means the goods are:
Option 3: Independent.
Question : The cross elasticity of demand between CocaCola and PepsiCola is ________ so Coke and Pepsi are ________.
Option 1: Positive; complements
Option 2: Negative; substitutes
Option 3: Negative; complements
Option 4: Positive; substitutes
Question : The cross elasticity of demand assesses how responsively a certain good's quantity desired is to changes in its prices.
Option 1: Its complements but not its substitutes.
Option 2: It's a substitute but not its complement.
Option 3: Its substitutes and complements
Option 4: Neither its substitutes nor its complements
Question : If two commodities are complements, then their cross-price elasticity is
Option 1: zero
Option 2: positive
Option 3: negative
Option 4: imaginary number
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