Answer to Question #249848 in Microeconomics for jly

Question

The cross-price elasticity values for three sets of products are listed in the table below. What can you conclude about the relationships between each of these sets of products?

Products Cross-Price Elasticity

A and B = -8.7

C and D = +5.5

E and F= 0.0

Answer 1

A negative cross elasticity of demand indicates that the demand for good A will decrease as the price of of good B will go up. This suggests that A and B are complementary goods.

A positive cross elasticity of demand means that the demand for good C will increase as the price of good D goes up. This means that goods C and D

are good substitutes.

Independent goods have a cross-price elasticity of zero because as the price for good E increases, the demand  for good F is unchanged.