The cross elasticity of demand (XEDXEDXED) for subscription streaming service Alpha (AAA) with respect to the subscription price of streaming service Beta (BBB) is calculated to be +1.6.
Which of the following statements correctly describes the relationship between these two services and the resulting impact of a price change?
The goods are complements, and a 10%10\%10% increase in the price of service BBB leads to a 16%16\%16% decrease in the quantity demanded of service AAA.
The goods are substitutes, and a 5%5\%5% decrease in the price of service BBB leads to an 8%8\%8% decrease in the quantity demanded of service AAA.
The goods are substitutes, and demand for service AAA is cross-price inelastic with respect to the price of service BBB.
The goods are complements, and a 5%5\%5% increase in the price of service BBB leads to an 8%8\%8% increase in the quantity demanded of service AAA.
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.