If commodities X and Y are substitute, their cross elasticit…

JAMB Economics 2023 174 views
Source: JAMB · 2023

If commodities X and Y are substitute, their cross elasticity of demand will be

  1. Positive ✓
  2. Zero
  3. One
  4. Negative
Explanation

Cross elasticity of demand measures how demand for one good changes when the price of another changes. For substitutes, such as Indomie and Golden Penny noodles, a price rise in one makes buyers switch to the other.

Demand for the other good rises, so the cross elasticity is positive. For complements, it is negative.

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