If the cross elasticity of demand is -2 ?
Correct answer: C. The products are complements and demand is cross price elastic
- A. The products are substitutes and demand is cross price elastic
- B. The products are substitutes and demand is cross price inelastic
- C. The products are complements and demand is cross price elastic
- D. The products are complements and demand is cross price inelastic
Explanation
A negative cross elasticity shows that the goods are complements: a rise in the price of one reduces demand for the other. Since the magnitude is 2, which exceeds 1, cross-price demand is elastic.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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