Elasticities for Normal Goods and Complements

Steps:

• Recall YED measures income elasticity: positive for normal goods, negative for inferior goods.
• Recall XED measures cross-price elasticity: negative for complements, positive for substitutes.
• For cars as normal goods, YED must be positive (demand rises with income).
• For petrol as complement to cars, XED must be negative (petrol demand falls if car price rises).

Why C is correct:

• YED positive confirms cars as normal goods (demand increases with income); XED negative confirms petrol as complement (demand for petrol decreases when car price increases), per elasticity definitions.

Why the others are wrong:

• A: Negative YED indicates inferior good, not normal.
• B: Positive XED indicates substitute, not complement.
• D: Negative YED indicates inferior good, not normal.

Final answer: C