A 10% rise in the price of commodity X leads to a 15% increase in the quantity demanded of commodity Y. This indicates that X and Y are

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substitute goods with a cross elasticity of +1.5. Cross price elasticity of demand = % change in Qd of Y / % change in price of X = 15/10 = +1.5. A positive cross elasticity indicates that X and Y are substitutes; as the price of X rises, consumers switch to Y, increasing its demand. Complements have negative cross elasticity.

Answer

A) complementary goods with a cross elasticity of -1.5

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B) substitute goods with a cross elasticity of +1.5

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C) inferior goods with a cross elasticity of +1.5

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D) complementary goods with a cross elasticity of +1.5

A 10% rise in the price of commodity X leads to a 15% increase in the quantity demanded of commodity Y. This indicates that X and Y are

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