Multiple Choice
Which of the following pairs of goods is most likely to have a cross-price elasticity of demand greater than zero?
4. Elasticity
Cross-Price Elasticity of Demand
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The cross-price elasticity of demand measures which of the following?
A
The responsiveness of the quantity supplied of a good to changes in its own price
B
The responsiveness of the quantity demanded of a good to changes in consumer income
C
The responsiveness of the quantity demanded of a good to changes in its own price
D
The responsiveness of the quantity demanded of one good to changes in the price of another good
Verified step by step guidance1
Understand that elasticity in economics measures responsiveness or sensitivity of one variable to changes in another variable.
Recall that the price elasticity of demand measures how much the quantity demanded of a good changes in response to a change in its own price.
Recognize that income elasticity of demand measures how quantity demanded changes in response to changes in consumer income.
Identify that cross-price elasticity of demand specifically measures how the quantity demanded of one good responds to changes in the price of a different good.
Conclude that cross-price elasticity helps determine whether two goods are substitutes (positive cross-price elasticity) or complements (negative cross-price elasticity).
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