Question #75373
In the market for air travel, which of the following variables would decrease demand, ceteris paribus?
a) An increase in rental rates for hired cars, a substitute.
b) A rise in income of tourists.
c) A rise in the price of air travel.
d) A rise in the price of hotel accommodation, a complement.
a) An increase in rental rates for hired cars, a substitute.
b) A rise in income of tourists.
c) A rise in the price of air travel.
d) A rise in the price of hotel accommodation, a complement.
Expert's answer
d)
Complement goods have negative cross elasticity of demand. That is why the demand for a good decreases when the price of a complement good increases.
Complement goods have negative cross elasticity of demand. That is why the demand for a good decreases when the price of a complement good increases.
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