question archive 1)If two goods substitute for each other, would the cross-price elasticity be negative? 2)If the demand for bananas is elastic, what impact will an increase in the price of bananas have on total revenue?
Subject:EconomicsPrice:2.88 Bought3
1)If two goods substitute for each other, would the cross-price elasticity be negative?
2)If the demand for bananas is elastic, what impact will an increase in the price of bananas have on total revenue?
1)No, if two goods are a substitute for each other they have a positive cross-price elasticity. This is because as the price of goods increases, the quantity demanded of the substitute goods also increases. If a good becomes more expensive, consumers will switch to substitute goods to receive similar benefits. A negative cross-price elasticity means that the two goods are complements for each other. Complement goods are consumed together. As the price of goods increases, the quantity demanded of the complement goods decreases.
2)Here, it is given that the demand for bananas is elastic; therefore, as the price of bananas rises then there is a greater decline in the quantity of bananas demanded. Henceforth, as the quantity demanded decline by a larger amount then it will in turn reduces the total revenue from selling bananas in the market.