Why can cross price elasticity of demand be positive or negative, unlike the price elasticity of demand with respect to the item's own price?
What will be an ideal response?
Cross price elasticity of demand is the responsiveness of the demand for one good to a change in the price of a related good. Goods are related in two ways: complements and substitutes. For complements, the demand for one good increases in response to a decrease in the price or another good, so that the cross price elasticity of demand for complementary goods is negative. For substitutes, the demand for one good decreases in response to a decrease in the price of another good, so that the cross price elasticity of demand for substitutable goods is positive.
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An import quota is a limit on the
A) number of foreign workers allowed to work in a country. B) number of container ships allowed to enter the territorial waters of the United States. C) value of low-priced foreign goods that are allowed to be imported into the United States. D) amount of a product that may be imported.
Which of the following statements about gold jewelry and round-trip bus tickets to Bismarck, North Dakota, is most likely to be correct?
a. They are both inferior goods. b. Their demand curves probably are quite similar. c. They are complements. d. They are substitutes. e. They are unrelated.