Answer to Question #221361 in Economics for Bea

Question

Suppose the cross-elasticity of demand between two products, A and B, is positive. If there is a fall in the cost of producing good B, the quantity demanded will

•  A. increase for both goods.
•  B. decrease for good A and increase for good B.
•  C. increase for good A and decrease for good B.
•  D. decrease for both goods.

Answer 1

If the cross-elasticity of demand between two products, A and B, is positive, then they are substitutes.

In such case if there is a fall in the cost of producing good B, the quantity demanded will decrease for good A and increase for good B.

So, the correct answer is B.