CA Foundation Exam > CA Foundation Questions > Cross elasticity of complementary goods is:a)...
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Cross elasticity of complementary goods is:
- a)Positive
- b)Negative
- c)Infinity
- d)None of these.
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
Cross elasticity of complementary goods is:a)Positiveb)Negativec)Infin...
Cross elasticity of complementary goods is negative.
Explanation:
Complementary goods are those goods that are used together. The cross elasticity of demand measures the responsiveness of demand for one good to a change in the price of another good. In the case of complementary goods, the cross elasticity of demand is negative. This is because, when the price of one complementary good increases, the demand for both goods decreases. Similarly, when the price of one complementary good decreases, the demand for both goods increases.
For example, consider the demand for peanut butter and jelly. If the price of peanut butter increases, the demand for jelly will decrease, and vice versa. This is because peanut butter and jelly are complementary goods that are typically used together. Therefore, a change in the price of one good affects the demand for the other good.
In summary, the cross elasticity of complementary goods is negative because a change in the price of one good affects the demand for the other good in the opposite direction.
Explanation:
Complementary goods are those goods that are used together. The cross elasticity of demand measures the responsiveness of demand for one good to a change in the price of another good. In the case of complementary goods, the cross elasticity of demand is negative. This is because, when the price of one complementary good increases, the demand for both goods decreases. Similarly, when the price of one complementary good decreases, the demand for both goods increases.
For example, consider the demand for peanut butter and jelly. If the price of peanut butter increases, the demand for jelly will decrease, and vice versa. This is because peanut butter and jelly are complementary goods that are typically used together. Therefore, a change in the price of one good affects the demand for the other good.
In summary, the cross elasticity of complementary goods is negative because a change in the price of one good affects the demand for the other good in the opposite direction.
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Cross elasticity of complementary goods is:a)Positiveb)Negativec)Infinityd)None of these.Correct answer is option 'B'. Can you explain this answer?
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