Question : If the cross elasticity of demand between two goods is negative, it means the goods are:
Option 1: Substitutes.
Option 2: Complements.
Option 3: Inferior goods.
Option 4: Normal goods.
Correct Answer: Complements.
Solution : The correct answer is (b) Complements.
When the cross elasticity of demand between two goods is negative, it indicates that the goods are complements. Complementary goods are those that are typically consumed together or used in conjunction with each other. The negative cross elasticity of demand implies an inverse relationship between the prices of the two goods and their quantity demanded. In other words, when the price of one complement increases, the quantity demanded of the other complement decreases.
For example, if the price of hot dogs (complement) increases, the quantity demanded of hot dog buns (complement) is likely to decrease. This negative relationship in the cross elasticity of demand between complementary goods reflects their interdependence in consumption patterns.
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