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    Question

    A high value of cross-elasticity indicates that the two

    commodities are
    A very close substitutes Correct Answer Incorrect Answer
    B very close complements Correct Answer Incorrect Answer
    C poor substitutes Correct Answer Incorrect Answer
    D poor complements Correct Answer Incorrect Answer

    Solution

    A high value of cross elasticity indicates that the two commodities are close substitutes. The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases.

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