If goods are complements, definitely their:

• A. income elasticities are negative.
• B. income elasticities are positive.
• C. cross elasticities are positive.
• D. cross elasticities are negative.

Answer: (D)

Cross-price elasticity of demand is the measure of how much the quantity demanded of one good responds to a price change in another good. For complements, the two goods are used together, so when the price of one rises, people buy less of that good and consequently less of its complement as well. This relationship makes the cross-price elasticity negative. If the goods were substitutes, a price increase in one would push consumers to buy more of the other, yielding a positive cross elasticity. Income elasticities, on the other hand, describe how demand changes with income and don’t determine whether two goods are complements or substitutes. So the negative cross elasticity accurately reflects the complement relationship.