If the cross-price elasticity between two goods is zero, the goods are

If the cross-price elasticity between two goods is zero, the goods are

• A. Substitutes
• B. Unrelated
• C. Complements
• D. Normal

Answer: (B)

Cross-price elasticity of demand shows how the quantity demanded of one good responds to a price change in another good. If this elasticity is zero, changing the price of the second good has no effect on the quantity demanded of the first, so the two goods do not influence each other’s demand. That means they are unrelated. Substitutes would have a positive cross-price elasticity (demand for one rises when the other’s price rises), complements a negative one (demand for one falls when the other’s price rises), and normal relates to income, not this relationship.

Cross-price elasticity of demand shows how the quantity demanded of one good responds to a price change in another good. If this elasticity is zero, changing the price of the second good has no effect on the quantity demanded of the first, so the two goods do not influence each other’s demand. That means they are unrelated. Substitutes would have a positive cross-price elasticity (demand for one rises when the other’s price rises), complements a negative one (demand for one falls when the other’s price rises), and normal relates to income, not this relationship.