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Q. If two goods are complementary, like pen and ink, then the cross elasticity is:
- a)Positive
- b)Zero
- c)Negative
- d)Less than one
Correct answer is option 'C'. Can you explain this answer?
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Q. If two goods are complementary, like pen and ink, then the cross el...
Complementary Goods and Cross Elasticity
Complementary goods are those that are used together to satisfy a particular need or want. For instance, pen and ink, bread and butter, or razor and blades are examples of complementary goods. In economics, the cross elasticity of demand measures the responsiveness of the demand for one good to the change in the price of another good. Thus, when we talk about the cross elasticity of demand for complementary goods, we are looking at how the price of one good affects the demand for the other good.
Negative Cross Elasticity for Complementary Goods
The cross elasticity of demand for complementary goods is always negative. This is because when the price of one good increases, the demand for the other good decreases. For example, if the price of pens increases, people will buy fewer pens, and as a result, they will also buy less ink. This is because pens and ink are used together, and if there are no pens, there is no need to buy ink.
Less Than One Cross Elasticity
The cross elasticity of demand for complementary goods is less than one. This is because the change in the price of one good has a proportionally smaller effect on the demand for the other good. For example, if the price of pens increases by 10%, the demand for ink may only decrease by 5%. This is because the demand for ink is not entirely dependent on the demand for pens.
Conclusion
In conclusion, complementary goods have a negative cross elasticity of demand, which is less than one. This means that when the price of one good increases, the demand for the other good decreases, but the effect is proportionally smaller. This relationship between complementary goods is essential for businesses to understand when setting prices and marketing strategies.
Complementary goods are those that are used together to satisfy a particular need or want. For instance, pen and ink, bread and butter, or razor and blades are examples of complementary goods. In economics, the cross elasticity of demand measures the responsiveness of the demand for one good to the change in the price of another good. Thus, when we talk about the cross elasticity of demand for complementary goods, we are looking at how the price of one good affects the demand for the other good.
Negative Cross Elasticity for Complementary Goods
The cross elasticity of demand for complementary goods is always negative. This is because when the price of one good increases, the demand for the other good decreases. For example, if the price of pens increases, people will buy fewer pens, and as a result, they will also buy less ink. This is because pens and ink are used together, and if there are no pens, there is no need to buy ink.
Less Than One Cross Elasticity
The cross elasticity of demand for complementary goods is less than one. This is because the change in the price of one good has a proportionally smaller effect on the demand for the other good. For example, if the price of pens increases by 10%, the demand for ink may only decrease by 5%. This is because the demand for ink is not entirely dependent on the demand for pens.
Conclusion
In conclusion, complementary goods have a negative cross elasticity of demand, which is less than one. This means that when the price of one good increases, the demand for the other good decreases, but the effect is proportionally smaller. This relationship between complementary goods is essential for businesses to understand when setting prices and marketing strategies.
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Q. If two goods are complementary, like pen and ink, then the cross elasticity is:a)Positiveb)Zeroc)Negatived)Less than oneCorrect answer is option 'C'. Can you explain this answer?
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Q. If two goods are complementary, like pen and ink, then the cross elasticity is:a)Positiveb)Zeroc)Negatived)Less than oneCorrect answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Q. If two goods are complementary, like pen and ink, then the cross elasticity is:a)Positiveb)Zeroc)Negatived)Less than oneCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Q. If two goods are complementary, like pen and ink, then the cross elasticity is:a)Positiveb)Zeroc)Negatived)Less than oneCorrect answer is option 'C'. Can you explain this answer?.
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