Concept:Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good.
Explanation:Substitute goods are used in place of each other, such as tea and coffee.
The formula is
Ec=%ΔPX%ΔQdY, where
X and
Y are the two commodities.
If the price of commodity
X rises, consumers switch to commodity
Y, so the quantity demanded of
Y also rises.
Similarly, if the price of
X falls, the quantity demanded of
Y falls because consumers return to
X.
Since price and quantity demanded move in the same direction, the value of
Ec is positive.
In contrast, complementary goods give a negative cross elasticity, while unrelated goods give a zero value.
Therefore, for substitute commodities, the cross elasticity of demand is positive.
Answer:B. positive