PRC-3 · Chapter 11 · Question 20 of 57
The Cross Price Elasticity of Demand between Product A and Product B is firmly positive (+1.5). This indicates that when the price of A rises, the demand for B rises. Therefore, A and B are:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Substitutes
Explanation
A positive cross elasticity means consumers switch from the more expensive good to the other good, indicating they serve the same purpose and are substitutes.
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