if the coefficient of cross elasticity of demand for goods Y and Z is positive, the two goods are?

Step 1: Analyze the question The question asks what a positive cross elasticity of demand (XED) tells us about the relationship between goods Y and Z.

Step 2: The concept Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good:

XED = % change in quantity demanded of Y ÷ % change in price of Z

The sign tells you the relationship:

• Positive XED: the goods are substitutes. When the price of Z rises, people switch to Y, so the demand for Y rises. Both changes go in the same direction, so the result is positive.
• Negative XED: the goods are complements. When the price of Z rises, the demand for Z falls, and so does the demand for Y, which is used together with Z. The changes go in opposite directions, so the result is negative.
• Zero XED: the goods are unrelated.

Step 3: Apply it Take Nigerian examples. If the price of Indomie rises and people buy more spaghetti, the XED is positive, so the two are substitutes. If the price of bread rises and people buy less butter or margarine, the XED is negative, so they are complements.

Here the coefficient is positive, so Y and Z are substitutes.

Step 4: Check the other options

• A. Complements: these have a negative XED, so this is wrong.
• C. Luxurious: this describes a type of good, usually linked to income elasticity, not cross elasticity.
• D. Inferior: this is also an income elasticity idea (negative income elasticity), so it is wrong.

Answer: B. Substitutes.

Exam tip: Remember "Positive = Partners that compete" (substitutes), and "Negative = Needed together" (complements). Also, cross elasticity involves two different goods, while income elasticity involves income, so don't mix them up.