If the Price of One Good Increases by 3 Percent

question 425

Multiple Choice

If the price of one good increases by 3 percent and the quantity demanded of another good increases by 2 percent, the cross elasticity is ________ and the two goods are ________.

• A) 2/3, substitutes
• B) 2/3, complements
• C) 3/2, complements
• D) 3/2, substitutes

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Definitions:

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, usually expressed in years.

Perpetuity

A financial term for a constant stream of identical cash flows with no end.

Yield

The earnings from an investment, like dividends or interest, shown as a percentage of the investment's original cost or its current market valuation.

Perpetuity

A type of financial instrument that provides an infinite stream of interest payments.