Question 2

Substitutes have a positive cross-price elasticity.

When the price of one good rises, the quantity demanded of a substitute good increases, indicating a positive cross-price elasticity. This relationship is characteristic of substitute goods.

A) Shortage goods

Shortage goods do not inherently exhibit a positive cross-price elasticity. Instead, they refer to situations where demand exceeds supply, and their price elasticity is not defined in terms of cross-price interactions with other goods.

B) Substitutes

Substitutes are characterized by a positive cross-price elasticity, meaning that as the price of one substitute good increases, the demand for another substitute good also increases. This reflects consumers' tendency to switch between products when faced with price changes.

C) Normal goods

Normal goods do not necessarily have a positive cross-price elasticity. Instead, they are defined by their relationship with consumer income; as income increases, the demand for normal goods increases, but their price interactions with other goods can vary.

D) Complements

Complements have a negative cross-price elasticity, meaning that an increase in the price of one good leads to a decrease in the demand for its complementary good. This is contrary to the positive cross-price elasticity characteristic of substitutes.

Conclusion

Substitutes are the only goods among the options listed that exhibit a positive cross-price elasticity, as rising prices of one good lead to increased demand for alternatives. In contrast, shortage goods, normal goods, and complements either do not display this relationship or exhibit negative elasticity, confirming that only substitutes fit the criteria being tested.