Which term describes the interrelationship where the demand for one product moves with the price of another product?

Which term describes the interrelationship where the demand for one product moves with the price of another product?

• A. Income effect
• B. Cross-price elasticity
• C. Price elasticity of demand
• D. Elasticity of supply

Answer: (B)

Cross-price elasticity of demand is the measure of how the quantity demanded of one good changes in response to a price change of another good. It captures the interrelationship between two products, indicating whether they are substitutes or complements. A positive cross-price elasticity means the goods are substitutes: when the price of one rises, people buy more of the other. A negative cross-price elasticity means they are complements: a higher price for one reduces the demand for the other. The other terms describe different ideas—income effect looks at changes in purchasing power from a price change; price elasticity of demand looks at how demand responds to the good’s own price; elasticity of supply looks at how quantity supplied responds to price. For example, if coffee and tea are substitutes, a rise in coffee’s price tends to increase tea demand, reflecting a positive cross-price elasticity.

Cross-price elasticity of demand is the measure of how the quantity demanded of one good changes in response to a price change of another good. It captures the interrelationship between two products, indicating whether they are substitutes or complements. A positive cross-price elasticity means the goods are substitutes: when the price of one rises, people buy more of the other. A negative cross-price elasticity means they are complements: a higher price for one reduces the demand for the other. The other terms describe different ideas—income effect looks at changes in purchasing power from a price change; price elasticity of demand looks at how demand responds to the good’s own price; elasticity of supply looks at how quantity supplied responds to price. For example, if coffee and tea are substitutes, a rise in coffee’s price tends to increase tea demand, reflecting a positive cross-price elasticity.