Question : When demand cross elasticity is significantly positive, one can draw the following conclusions:
Option 1: When the good is normal
Option 2: When the good is inferior
Option 3: When the good is a substitute
Option 4: When the good is a compliment
Answer (1)
10th Jan, 2024
Correct Answer: When the good is a substitute
Solution :
When cross elasticity of demand is a large positive number, one can conclude that good is a substitute.
As substitute products have a positive cross elasticity of demand. As the price for Y increases, the demand for substitute X also increases.
Hence option c is the correct answer.
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