If the cross-price elasticity of demand between two goods is negative, the goods are most likely:
Correct answer: B. Complementary goods
- A. Substitute goods
- B. Complementary goods
- C. Normal goods
- D. Inferior goods
Explanation
A negative cross-price elasticity means that a rise in the price of one good reduces demand for the other. This is the usual relationship between complementary goods, such as cars and petrol. Normal and inferior describe income effects, not cross-price relationships.
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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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