A cross-price elasticity of -0.5 indicates that the two goods are

• A. Substitutes
• B. Normal
• C. Complements
• D. Unrelated

Answer: (C)

Cross-price elasticity of demand shows how the quantity demanded of one good responds to a price change in another. A negative value means the goods are used together: when the price of one goes up, people buy less of the other. A magnitude of -0.5 indicates a modest but real complement relationship—there’s a noticeable but not extreme linkage between the two. Substitutes would show a positive cross-price elasticity because a price rise in one prompts more demand for the other. Normal versus inferior describes how demand shifts with income, not with the price of another good, and unrelated goods would have a cross-price elasticity near zero. So the two goods are complements.