Question : If the cross elasticity of demand between two goods is zero, it means the goods are:
Option 1: Substitutes.
Option 2: Complements.
Option 3: Independent.
Option 4: Normal goods.
Correct Answer: Independent.
Solution : The correct answer is (c) independent.
Cross elasticity of demand measures the responsiveness of quantity demanded of one good to changes in the price of another good. When the cross elasticity of demand is zero, it indicates that the two goods are independent of each other in terms of demand. The change in price of one good does not have any significant impact on the quantity demanded of the other good.
In this case, the goods are neither substitutes nor complements. Substitutes are goods that can be used in place of each other, so an increase in the price of one substitute would lead to an increase in demand for the other substitute. Complements are goods that are typically consumed together, so an increase in the price of one complement would lead to a decrease in demand for the other complement. When the cross elasticity of demand is zero, it means the goods are unrelated or independent, and changes in the price of one good do not affect the demand for the other good.
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