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JAMB Economics 2007 Question 9

Question 9

Elasticity

The major determinant of cross elasticity of demand is the

  1. A.price of the good
  2. B.degree of necessity of the good
  3. C.level of income of consumers
  4. D.closeness of the substitutes
Show the answer and explanation

Answer: D (closeness of the substitutes)

Explanation

Cross elasticity measures how demand for one good responds to another good's price; the closer the substitutes, the bigger the response.