Negative Cross Elasticity Means Complementary Goods

Steps:

• Cross elasticity of demand measures how quantity demanded of X changes with price of Y: E_xy = (%ΔQ_x) / (%ΔP_y).
• Negative value indicates X and Y are complements; demand for X falls when Y's price rises.
• Rising price of Y reduces quantity demanded of Y.
• Thus, quantity demanded of X immediately falls as consumers buy less of the complementary pair.

Why A is correct:

• For complements, negative cross elasticity implies higher P_y decreases Q_x, per the definition E_xy < 0.

Why the others are wrong:

• B: Supply of X depends on its own costs, not Y's price directly.
• C: Price of X is determined by its supply-demand equilibrium, not immediately by Y's price change.
• D: Cross elasticity is a fixed parameter; it doesn't change with one price shift.

Final answer: A