Cross-Price Demand Relationships

Steps:

• As price of X falls from 5 to 1, quantity of X rises from 100 to 300, showing normal demand.
• Quantity of Y falls from 60 to 15 as price of X falls, so demand for Y moves inversely with price of X.
• Quantity of Z rises from 20 to 40 as price of X falls, so demand for Z moves directly with price of X.
• Inverse movement indicates substitutes; direct movement indicates complements, so Y is a substitute for X and Z is a complement for X.

Why C is correct:

• C states Y is a substitute (inverse quantity response to price change) and Z is a complement (direct quantity response), matching cross-price elasticity definitions.

Why the others are wrong:

• A: Wrongly calls Y a complement, but Y's quantity falls when X's price falls.
• B: Wrongly calls Z a substitute, but Z's quantity rises when X's price falls.
• D: Identical to B, so same error on Z.

Final answer: C