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    Question

    What is the value of elasticity of substitution in case

    of complements?
    B 1 Correct Answer Incorrect Answer
    C Infinity Correct Answer Incorrect Answer
    D Negative Correct Answer Incorrect Answer

    Solution

    σ=0 indicates that the inputs cannot substitute for each other, indeed they are perfect complements; one cannot be employed without also employing the other. For example, in car production, wheels require tyres; neither is sufficient on its own. Thus wheels and tyres are perfect complements.

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