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    Cross-Price Elasticity and Complements

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    Positive cross-price elasticity is said to occur when the demand and price for two products are moving in the same direction.

    If cross-price elasticity is positive, does that mean two products are complements? Why or why not?

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    Solution Preview

    Cross-price elasticity...
    Let's assume products AAA and BBB are complements, meaning that an increase in the demand for AAA increases the demand for BBB. Now the demand for product AAA increases which causes the demand curve for product BBB to increase BBB's price, as a ...

    Solution Summary

    This solution explains the concept of cross-price elasticity.