Question

Substitutes are pairs of products : A. positive cross-price elasticity of demand B. negative cross-price elasticity of demand C. positive income elasticity of demand D. negative income elasticity of demand E. positive price elasticity of demand

Answer 1

Answer:

A. positive cross-price elasticity of demand

Explanation:

For substitute goods we always have a positive cross-price elasticity of demand. 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.

For example, if the price of a

brand of beverage increases, the quantity demanded for a substitute beverage increases, this happens because consumers will quickly switch to a less expensive yet substitutable alternative. In the cross elasticity of demand formulae both the price and product are positive.