**Question:**If the cross elasticity of demand for two goods is positive:- ○ one good is normal and one is inferior- ○ the goods are substitutes- ○ both goods are normal goods- ○ the goods are complements**Explanation:**Cross elasticity of demand measures how the quantity demanded of one good changes in response to a price change in another good. If the cross elasticity of demand is positive, it indicates that the two goods are substitutes. This means that as the price of one good rises, the demand for the other good increases, since consumers switch to the substitute.

Answered: If the cross elasticity of demand for…

If the cross elasticity of demand for two goods is positive: one good is normal and one is inferior O the goods are substitutes O both goods are normal goods O the goods are complements

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Expert Solution

Step 1

If the cross elasticity of demand for two goods is positive, then decrease in the price of good X will decrease the demand for good Y.

This happens when X and Y are substitute goods.

Decrease in price of tea will decrease the demand for coffee.

As good X becomes cheaper, people will buy more of good X and less of good Y.

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