Managerial Economicsintermediate
Match each elasticity measure or sign with its meaning.
Answer
Price elasticity of demand - Demand response to the good's own price; Income elasticity of demand - Demand response to income; Positive cross-price elasticity - Relationship associated with substitutes; Negative cross-price elasticity - Relationship associated with complements
Explanation
### The pairs
| Item | Matches | Why |
|---|---|---|
| Price elasticity of demand | Demand response to the good's own price | It measures the responsiveness of quantity demanded to own price. |
| Income elasticity of demand | Demand response to income | It measures how quantity demanded responds when income changes. |
| Positive cross-price elasticity | Relationship associated with substitutes | A price rise for one alternative can increase demand for another. |
| Negative cross-price elasticity | Relationship associated with complements | A price rise for one good can reduce demand for a good used with it. |
### Remember
The second variable in an elasticity’s name tells you what change demand responds to.
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