If the cross-price elasticity of demand between two goods is positive, the goods are likely to be substitute.Question 3AnswerTrueFalse

Step 1: Break Down the Problem

The statement is about the relationship between the cross-price elasticity of demand and the nature of goods (whether they are substitutes or complements).

Step 2: Relevant Concepts

• Cross-Price Elasticity of Demand: This measures how the quantity demanded of one good responds to changes in the price of another good.
• If the cross-price elasticity is:
  • Positive: The goods are substitutes (as the price of one good increases, the demand for the other good increases).
  • Negative: The goods are complements (as the price of one good increases, the demand for the other good decreases).

Step 3: Analysis and Detail

Given that the question states that the cross-price elasticity of demand is positive, this indicates that an increase in the price of one good will lead to an increase in the quantity demanded of the other good. This is a defining characteristic of substitute goods.

Step 4: Verify and Summarize

Since positive cross-price elasticity implies that the two goods can replace each other, the statement is correct.

Final Answer

True: If the cross-price elasticity of demand between two goods is positive, the goods are likely to be substitutes.