Interpreting Cross-Price Elasticity Signs

Steps:

• Cross-price elasticity measures how demand for one good changes with another's price; positive value indicates substitutes, negative indicates complements.
• For S and P: +1.5 > 0, so demand for S rises when P's price rises, meaning S and P are substitutes.
• For P and R: -1.5 < 0, so demand for P falls when R's price rises, meaning P and R are complements.
• Inferior goods relate to income elasticity, not cross-price, so irrelevant here.

Why C is correct:

• C matches definitions: positive elasticity for S-P (substitutes) and negative for P-R (complements).

Why the others are wrong:

• A: Misclassifies S-P as complements (positive sign means substitutes).
• B: Misclassifies S-P as complements; inferior goods unrelated to cross-elasticity.
• D: Correctly identifies S-P substitutes but wrongly labels P-R inferior (negative sign means complements).

Final answer: C