Which of the following statements is TRUE? I. Movies in a theater and movies at home could be substitute goods if the falling price of home entertainment equipment causes people to watch more movies at home and fewer in the theater. II. Movies in a theater and movies at home could be complement goods if watching a lot of movies at home causes people to become more interested in movies, increasing their demand for movies in a theater. III. If the cross-price elasticity of demand between movies in a theater and movies at home is 0.33, the two goods are complements.

The correct option is I and II.

Explanation:

The two goods are substitutes when the price of one good increases the demand for other good increases.

Movies at theaters and movies at homes are substitutes in (I) since the higher price of theater movies causes an increase in demand for home movies.

However, movies at theaters and homes are complements in (II) as an increase in demand for one also causes an increases demand for the other.

Cross price elasticity of complementary goods, however is negative, so (III) is wrong.

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