What Does It Tell You If the Cross Price Elasticity

question 7

Multiple Choice

What does it tell you if the cross price elasticity of demand between two products is +2?

• A) The products are substitutes and a price increase in one by 3% decreases demand for the other by 1.5%.
• B) The products are complements and a price increase in one by 3% decreases demand for the other by 1.5%.
• C) The products are complements and a price increase in one by 3% decreases demand for the other by 6%.
• D) The products are substitutes and a price increase in one by 3% increases demand for the other by 6%.

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Definitions:

Formula

A symbolic expression that defines a rule or relationship in mathematics.

Labor

The exertion of human mental and physical strength in the process of producing goods and rendering services.

Perfectly Competitive

A market structure characterized by many buyers and sellers, homogeneous products, and no barriers to entry or exit, leading to perfect information and the inability of any single entity to influence the market price.