A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded from 900 to 1,100 units. X and Y are

A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded from 900 to 1,100 units. X and Y are

• A. Complements.
• B. Normal goods.
• C. Substitutes.
• D. Inferior goods.

Answer: (C)

This question tests cross-price elasticity of demand. When the price of X falls (from 12 to 8) and the quantity of Y demanded rises (from 900 to 1100), the demand for Y moves in the same direction as the price of X falls, which indicates a complement relationship. Compute the percent changes: price change is (8−12)/12 = −33.3%, quantity change is (1100−900)/900 ≈ +22.2%. The cross-price elasticity Exy = (%ΔQy) / (%ΔPx) ≈ 0.222 / (−0.333) ≈ −0.67, a negative value. A negative cross-price elasticity means the goods are complements (when the price of one falls, the other’s quantity demanded rises). So the pattern shown fits complements, not substitutes.

This question tests cross-price elasticity of demand. When the price of X falls (from 12 to 8) and the quantity of Y demanded rises (from 900 to 1100), the demand for Y moves in the same direction as the price of X falls, which indicates a complement relationship. Compute the percent changes: price change is (8−12)/12 = −33.3%, quantity change is (1100−900)/900 ≈ +22.2%. The cross-price elasticity Exy = (%ΔQy) / (%ΔPx) ≈ 0.222 / (−0.333) ≈ −0.67, a negative value. A negative cross-price elasticity means the goods are complements (when the price of one falls, the other’s quantity demanded rises). So the pattern shown fits complements, not substitutes.