Question : Assertion (A): Cross demand is positive in the case of substitute goods.
Reason (R): A drop in demand for particular commodity results from an increase in the price of substitute commodities.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is False but Reason (R) is True
Correct Answer: Assertion (A) is true but Reason (R) is False
Solution :
Because demand for one good rise when the price for the substitute good rises, the cross elasticity of demand for substitute goods is always positive. In contrast, the demand for complementary items has a negative cross-elasticity.
Hence option c is the correct answer.
