Answer to Question #260311 in Microeconomics for Jade

Question

Distinguish between substitutes and complements using cross price elasticity coefficients to motivate your answer.

Answer 1

Substitute goods are goods whose cross price elasticity is positive. This means that as the price of one good rises, the demand for the other good increases.

On the other hand, complement goods are goods whose cross price elasticity is negative. Negative cross elasticity of demand means that the good's demand is increased when the price of another good is decreased.