Demonstrates a connection between the supply and demand curves

Subject : Business

Question: Read the statement and determine its accuracy:

The cross-price effect demonstrates a connection between the supply and demand curves of different products.

A. True

B. False

Expert Verified Solution:

The correct answer is:

B. False

Explanation:

The cross-price effect (or cross-price elasticity) measures how the quantity demanded of one good responds to a change in the price of a different good. It indicates whether two goods are substitutes or complements.

Substitutes: If the price of one good increases, the demand for the other good increases.

Complements: If the price of one good increases, the demand for the other good decreases.

The cross-price effect does not directly demonstrate a connection between the supply and demand curves of different products. Instead, it relates to how the demand for one product changes in response to the price change of another product. The connection between supply and demand curves of different products is more about how these curves interact in the market, rather than a direct measure of how one product’s price affects another’s demand.