The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices ofChoose one optionIts complements but not its substitutesits substitutes and its complementsits substitutes but not its complementsneither its substitutes nor its complements
Question
The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices ofChoose one optionIts complements but not its substitutesits substitutes and its complementsits substitutes but not its complementsneither its substitutes nor its complements
Solution
The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices of its substitutes and its complements. This means that it takes into account how a change in the price of a related good—either a complement or a substitute—affects the demand for the good in question.
For example, if the price of coffee (a substitute for tea) increases, the demand for tea might increase as consumers switch to the cheaper alternative. Similarly, if the price of sugar (a complement to tea) decreases, the demand for tea might increase because the overall cost of consuming tea (with sugar) has decreased.
So, the correct option is: its substitutes and its complements.
Similar Questions
Cross-Price Elasticity of Demand - Measures the responsiveness of the demand for a good to a change in the price of another good.Question 1AnswerTrueFalse
Cross elasticity measures the responsiveness of quantity demanded of a particular good to changes in the price of related good.TrueFalseReset Selection
Cross-price elasticity of demand isMultiple Choicenegative for complementary goods.negative for substitute goods.unitary for secondary goods.positive for general goods.
If the cross-price elasticity of demand is negative, the two goods being examined are:A.substitutes.B.complements.C.luxury goods.D.inferior goods.E.normal goods.
How does an increase in the price of a complementary good affect the cross-price elasticity of demand? The cross-price elasticity of demand becomes more positive. The cross-price elasticity of demand becomes more negative. The cross-price elasticity of demand remains the same. The effect on the cross-price elasticity of demand cannot be determined.
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