Asked by aradhana mehra on Jun 30, 2024
Verified
We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because:
A) soft drinks are normal goods.
B) the income effect always exceeds the substitution effect.
C) there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.
D) there are more good substitutes for soft drinks as a whole than for Pepsi specifically.
Cross Elasticity
A measure of the responsiveness of the demand for one good to a change in the price of another good.
Soft Drinks
Carbonated, non-alcoholic beverage options often flavored with various sweeteners, fruits, or other flavorings.
Substitutes
Products or services that can be used in place of each other, where the increase in price of one leads to an increase in demand for the other.
- Comprehend the significance of cross elasticity of demand between goods and its implications for substitutability and complementarity.
Verified Answer
ZK
Zybrea KnightJul 07, 2024
Final Answer :
C
Explanation :
The cross elasticity of demand measures the responsiveness of the quantity demanded for one good in response to a change in the price of another good. Pepsi has a variety of close substitutes in the soft drink market, such as Coca-Cola and Dr. Pepper. Therefore, a price increase in Pepsi will lead consumers to switch to these substitutes, resulting in a greater change in quantity demanded compared to soft drinks in general, which have fewer close substitutes.
Learning Objectives
- Comprehend the significance of cross elasticity of demand between goods and its implications for substitutability and complementarity.