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This option is correct because pens and pencils are substitutes for each other. It means as pen price rises then demand for pencils also rises and as pen price falls then demand pencils also falls. It shows that they have positive cross-price elasticity of demand.
In which types of goods cross elasticity of demand is positive?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. Alternatively, the cross elasticity of demand for complementary goods is negative.
What is positive cross price elasticity?Positive Cross Price Elasticity (Substitutes)
Positive Cross Price Elasticity occurs when the formula produces a result greater than 0. That means that when the price of product X increases, the demand for product Y also increases. For example, McDonald's may increase the price of its products by 20 percent.
When cross price elasticity is positive the two goods are?We determine whether goods are complements or substitutes based on cross price elasticity - if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.
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For which pairs of goods is the cross price elasticity most likely to be positive group of answer choices?
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