Discussion
If the cross elasticity of demand for two goods is negative, then they are :
Answer: A
Goods with a negative cross elasticity of demand are complements.
Cross elasticity measures how the quantity demanded of good X responds to a change in the price of good Y:
\[ e_{xy} = \frac{\%\ \Delta Q_{x}}{\%\ \Delta P_{y}} \]
For complements such as cars and petrol, a rise in the price of one reduces the demand for both, so the sign is negative. For substitutes such as tea and coffee, a rise in the price of one raises the demand for the other, so the sign is positive. Luxuries are defined by a high income elasticity, and consumer goods is a broad class, so neither is identified by the sign of cross elasticity.
No comment is present. Be the first to comment.
Loading…
Post your comment
Please log in or register to post a comment.
Examination Categories
- SSC Exams
- Banking Exams
- Teaching Exams
- Civil Services Exams
- Railways Exams
- Engineering Recruitment Exams
- Defence Exams
- State Government Exams
- Police Exams
- Insurance Exams
- Nursing Exams
- Other Government Exams
- NRA CET
- PG Entrance Exams
- Campus Placement
- MBA Entrance Exams
- CUET and UG Entrance
- Judiciary Exams
- Regulatory Body Exams
- Software Development