A Level Economics (9708)•9708/12/M/J/22
Explanation
Cross-Price Elasticity Signs Indicate Substitutes or Complements
Steps:
- Recall cross-price elasticity of demand measures how quantity demanded of one good changes with price of another: positive value means substitutes, negative means complements.
- For S and P: elasticity +1.5 (positive), so demand for S rises when P's price rises, indicating S and P are substitutes.
- For P and R: elasticity -1.5 (negative), so demand for P falls when R's price rises, indicating P and R are complements.
- Infer relationship between P and R directly from the sign of E_{P,R}.
Why C is correct:
- C matches definitions: positive cross-elasticity for S and P confirms substitutes; negative for P and R confirms complements.
Why the others are wrong:
- A: Claims S and P complements, but positive +1.5 indicates substitutes.
- B: Claims S and P complements (wrong, positive sign); inferior goods involve income elasticity, irrelevant here.
- D: Claims P and R inferior good (wrong, inferior relates to income effects, not cross-price).
Final answer: C
Topic: Price elasticity, income elasticity and cross elasticity of demand
Practice more A Level Economics (9708) questions on mMCQ.me