A rise in the price of good A will shift the

A rise in the price of good A will shift the

• A. supply curve of good B rightward if the cross elasticity of demand between A and B is positive.
• B. demand curve for good B rightward if the cross elasticity of demand between A and B is negative.
• C. demand curve for good B rightward if the cross elasticity of demand between A and B is positive.
• D. supply curve of good B rightward if the cross elasticity of demand between A and B is negative.

Answer: (C)

This question hinges on cross elasticity of demand, which tells us how the quantity demanded of one good responds to a price change in another. If the price of good A goes up and the cross elasticity between A and B is positive, A and B are substitutes: people switch from A to B. That increases the quantity demanded of B at every price, so B’s demand curve shifts to the right. Conversely, a negative cross elasticity means they are complements, so a rise in A’s price would reduce demand for B and shift B’s demand curve to the left. The option describing a rightward shift of B’s demand due to a positive cross elasticity correctly matches this relationship, and it refers to the demand curve, not the supply curve.

This question hinges on cross elasticity of demand, which tells us how the quantity demanded of one good responds to a price change in another. If the price of good A goes up and the cross elasticity between A and B is positive, A and B are substitutes: people switch from A to B. That increases the quantity demanded of B at every price, so B’s demand curve shifts to the right. Conversely, a negative cross elasticity means they are complements, so a rise in A’s price would reduce demand for B and shift B’s demand curve to the left. The option describing a rightward shift of B’s demand due to a positive cross elasticity correctly matches this relationship, and it refers to the demand curve, not the supply curve.