In cases of perfect substitute goods cross elasticity is positive and very high. It means when the price of the substitute goods falls, the demand of the commodity also falls or vice versa. Therefore, substitute goods have very high perfect cross elasticity of demand.

Cross Elasticity of Demand between Perfect Substitutes

The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. In the case of perfect substitutes, the two goods are identical and can be used interchangeably, meaning that a change in the price of one good will cause consumers to switch to the other good.

Infinity as the Correct Answer

The cross elasticity of demand for perfect substitutes is infinite because any increase in the price of one good will cause consumers to switch entirely to the other good, resulting in an infinite change in the quantity demanded. This means that the demand for one good is perfectly elastic with respect to the price of the other good.

This can also be understood through the formula for cross elasticity of demand:

% change in quantity demanded of good A / % change in price of good B

In the case of perfect substitutes, the % change in quantity demanded of good A will be equal to the % change in price of good B, resulting in a cross elasticity of demand of infinity.

Conclusion

In conclusion, the correct answer to the question is option B, as the cross elasticity of demand between two perfect substitutes is infinite, meaning that any change in the price of one good will result in an infinite change in the quantity demanded of the other good.

When two goods have same features and characteristics and one can be used for the other then such a goods are known as perfect substitute goods. For example petrol and Indian Oil petrol etc. since both could have same features when the price of one commodity reduces it leads to infinity changes in the other commodity therefore the cross elasticity demand between this goods is infinity