What is the elasticity for a cross-price elastic complement good?A.Greater than 1B.Between 0 and 1C.Less than -1D.Between -1 and 0
Question
What is the elasticity for a cross-price elastic complement good?
A. Greater than 1
B. Between 0 and 1
C. Less than -1
D. Between -1 and 0
Solution
The correct answer is D. Between -1 and 0.
Cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. If two goods are complements, then the cross-price elasticity of demand is negative, because as the price of one good rises, the demand for the complementary good decreases.
However, the value is between -1 and 0 (not less than -1) because the percentage change in the quantity demanded of the first good is less than the percentage change in the price of the second good. This indicates that the goods are not perfect complements, but rather weak complements.
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