SACE Stage 2 Economics Practice Questions - SACE Stage 2 Economics External Assessment Exam

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When the price of lithium-ion batteries decreases by 20%, the quantity demanded for electric vehicles increases by 30%. What is the Cross-Price Elasticity of Demand (XED) and what is the economic relationship between these goods?

XED = -1.5; electric vehicles and lithium-ion batteries are complementary goods. XED = +1.5; electric vehicles and lithium-ion batteries are substitute goods. XED = -0.67; electric vehicles and lithium-ion batteries are independent goods. XED = +0.67; electric vehicles and lithium-ion batteries are inferior goods.

Correct Answer:

XED = -1.5; electric vehicles and lithium-ion batteries are complementary goods.

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