Inferring elasticities from price and revenue changes

Steps:

• Price of X rises and total spending rises, so quantity demanded falls proportionally less than price, meaning own-price elasticity magnitude <1 (inelastic).
• Demand for Y falls (quantity demanded decreases) when price of X rises, indicating X and Y are complements.
• For complements, cross-price elasticity of Y with respect to X price is negative (<0).
• Thus, own-price elasticity for X <1 (in magnitude) and cross-price elasticity <0.

Why B is correct:

• Inelastic demand (|E_d| <1) raises revenue when price rises; negative cross-price elasticity defines complements, matching quantity of Y falling.

Why the others are wrong:

• A: Own-price >1 implies elastic (revenue would fall), and cross >0 implies substitutes (Y demand would rise).
• C: Own-price >1 implies elastic (revenue would fall), though cross <0 is correct.
• D: Cross >0 implies substitutes (Y demand would rise), though own-price <1 is correct.

Final answer: B