What is the elasticity for a cross-price inelastic substitute good?A.Less than -1B.Between 0 and 1C.Greater than 1D.Between -1 and 0SUBMITarrow_backPREVIOUS
Question
What is the elasticity for a cross-price inelastic substitute good?
A. Less than -1
B. Between 0 and 1
C. Greater than 1
D. Between -1 and 0
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Solution
The cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. It is defined as the percentage change in quantity demanded for the first good that occurs in response to a percentage change in price of the second good.
For substitute goods, the cross-price elasticity of demand is positive, because as the price of one good increases, the demand for the substitute good increases.
However, if the cross-price elasticity of demand is inelastic, it means that the quantity demanded of the substitute good does not respond strongly to changes in the price of the other good.
So, the correct answer is B. Between 0 and 1. This is because the cross-price elasticity of demand for inelastic substitute goods is positive but less than 1.
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