Question

If the cross elasticity of demand is -2:

• A. The products are substitutes and demand is cross price elastic
• B. The products are substitutes and demand is cross price inelastic
• C. The products are complements and demand is cross price elastic
• D. The products are complements and demand is cross price inelastic

Answer 1

The correct option is C

The products are complements and demand is cross price elastic

This means that e.g. a 10% increase in the price of one product reduces the quantity demanded of another product by 20%; the products are complements and the cross price elasticity is elastic (because the effect on quantity demanded is greater than the change in price in percentages).