The cross-elasticity of demand between complementary goods is?
- unitary
- positive
- zero
-
negative
The correct answer is: D
Explanation
The cross elasticity of demand for complementary goods is negative because, as the price for one item (say the main commodity) increases, the demand for an item closely related to that item also decreases due to the decrease in demand for the main commodity.
Just like the law of demand states that people will be willing to buy more of a commodity at a lower price, it is the same way a rise in the price of a complementary good will affect the demand for its complement.