Question

If the price of good X increases by 2%, and that causes the quantity demanded of good Y to increase by 10%, then the cross-price elasticity of demand for good Y, with respect to the price of good X, is ________ ,and the two goods are _______.

Answer 1

Answer:

The cross elasticity of good X 5%, divide 10% of change in demand from the 2% of price increase in good Y.

The two goods are SUBSTITUTE Goods.

Explanation:

In substitute goods, when the price of one good increases, people start using less of that good and move onto use cheaper other goods that can be used instead of that good.