Cross elasticity of complementary goods is:a)Positiveb)Negativec)Infin...
In economics, a complementary good or complement is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased.
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Cross elasticity of complementary goods is:a)Positiveb)Negativec)Infin...
Explanation:
Cross elasticity of demand measures how the demand for one product is affected by the change in the price of another product. Complementary goods are those goods that are used together, such as bread and butter or cars and gasoline. When there is a change in the price of one complementary good, it affects the demand for the other complementary good.
The cross elasticity of complementary goods is negative, which means that the change in the price of one complementary good results in an opposite change in the demand for the other complementary good. For example, when the price of gasoline increases, the demand for cars decreases because people are less likely to buy cars if they have to pay more for gasoline. Similarly, when the price of cars increases, the demand for gasoline decreases because people are less likely to use their cars if they have to pay more for them.
In contrast, the cross elasticity of substitute goods is positive, which means that the change in the price of one substitute good results in a change in the demand for the other substitute good. For example, if the price of Pepsi increases, the demand for Coke may increase because people may switch to Coke as a substitute.
To summarize, the cross elasticity of complementary goods is negative because the demand for one complementary good decreases as the price of the other complementary good increases.
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