The cross price elasticity of demand for substitutes goods is:Question 9Select one:a.negative.b.positive.c.equal to 1.d.positive only for normal goods.

Break Down the Problem

1. Identify the Type of Goods: Understand the relationship between substitute goods.
2. Define Cross Price Elasticity of Demand: Recognize what cross price elasticity indicates in terms of demand changes.

Relevant Concepts

1. Cross Price Elasticity of Demand: It is calculated by the formula: $E_{xy} = \frac{\%\Delta Q_x}{\%\Delta P_y}$ where:
   • $E_{xy}$ is the cross price elasticity,
   • $\%\Delta Q_x$ is the percentage change in quantity demanded of good $x$,
   • $\%\Delta P_y$ is the percentage change in price of good $y$ (substitutes).

Analysis and Detail

1. Substitutes Relationship: For substitute goods, an increase in the price of one good typically leads to an increase in the demand for another. Thus, the percentage change in quantity demanded of substitutes will be positive when the price of one of them increases.
2. Conclusion on Elasticity: Since the effect of one good on another (in terms of price change and demand change) is direct, the cross price elasticity of demand for substitutes is always positive.

Verify and Summarize

1. The correct choice is confirmed: the cross price elasticity of demand is characteristically positive for substitute goods.

Final Answer

b. positive