Question

An economist calculated the cross-price elasticity of demand for nicknacks and gizmos and got -0.5. What can she conclude about the relationship between these two goods based on this elasticity?

A they are unrelated goods Correct Answer Incorrect Answer
B they are substitutes Correct Answer Incorrect Answer
C they are complements Correct Answer Incorrect Answer
D they are normal goods Correct Answer Incorrect Answer
E they are necessities Correct Answer Incorrect Answer

Solution

They are complements because cross-price elasticity is negative.

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