If cross elasticity between two goods is negative, the goods are

• A. Substitutes.
• B. Complements.
• C. Normal goods.
• D. Inferior goods.

Answer: (B)

Cross-price elasticity measures how the quantity demanded of one good responds to a change in the price of another good. A negative cross-price elasticity means the two goods are complements, meaning they’re typically used together. When the price of one good rises, the demand for its complement falls because using both becomes less attractive or more costly. Substitutes would show a positive cross-price elasticity since a price rise in one drives people to the other. Normal vs inferior describe how demand changes with income, not with the price of another good, so they don’t apply here. Therefore, the relationship is that the two goods are complements.