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.