Answer to Question #263121 in Microeconomics for Tsholo

Question

Distinguish between substitutes and complements using cross elasticity coefficients

Answer 1

Substitutes are goods whose cross price elasticity is positive. This implies that as the price of one good rises, the demand for the other good raises.

On the other hand complement goods are goods whose cross price elasticity is negative. This implies that the demand for the good is increased when the price of another good is decreased.