Suppose goods a and b are substitutes for each other. We would expect the cross-price elasticity between these two goods to be.

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19-09-2022
Business

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Suppose goods a and b are substitutes for each other. We would expect the cross-price elasticity between these two goods to be.

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Qwline Qwline · Answer 1 · 2022-09-21T12:56:55-04:00

When two goods a and b are substitutes for each other then the cross-price elasticity between these two goods will be positive.

Economists use the cross-price elasticity of demand to categorize the relationship between two different items. The positive cross-price elasticity of demand indicates that two goods are substitutes. In other words, a decrease in the quantity demanded of a product due to an increase in its price will result in a rise in the demand for its substitute. On the other hand, if a product's price is reduced which will eventually increase the demand, the demand for its substitute product will decline.

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