True or false,- If the cross-price elasticity of demand for services provided by island air and wot-a-dive is -0.66, we can conlcude that the two servives are complements. ExplainPlz help me in this economic question on true and false and your explaination?
As the negative value suggests, there is an inverse relationship between the price of one and the demand for the other, though the question does not specify to which the XED value refers ( the demand for airline travel with respect to the price of car travel or the demand for car travel with respect to the price of air travel.....it is unlikely the values will be the same....but just assume that they are for the purpose of this question).
As passenger flights become cheaper demand for air travel to the island rises and, therefore, demand for hire cars may be expected to rise. A 10 % fall in air fares will lead to a rise of 6.6% in demand for island car travel and the two forms of travel are complementary.
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