Asked by Chelsy Martin on May 16, 2024
Verified
Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13.This means that butter and margarine are _____,while water and lemons are _____.
A) complements;substitutes
B) substitutes;complements
C) inelastic goods;elastic goods
D) elastic goods;complements
Cross-Price Elasticity
A measure in economics that shows how the quantity demanded of one good reacts to a change in price of another good, indicating their substitutability or complementarity.
Butter And Margarine
These are two types of spreads commonly used as alternatives to each other; butter is made from animal fat while margarine is made from vegetable oils.
Water And Lemons
This may refer to the economic theory illustrating the concept of asymmetric information, where sellers have more information about the product quality than buyers, as famously exemplified in Akerlof’s “The Market for Lemons.”
- Familiarize oneself with the concept known as cross-price elasticity of demand.
- Acquire knowledge about the contrast in price elasticity among substitute and complementary items.
- Familiarize oneself with the impact of changing prices on the desire for associated products, categorizing them into complements and substitutes.
Verified Answer
Learning Objectives
- Familiarize oneself with the concept known as cross-price elasticity of demand.
- Acquire knowledge about the contrast in price elasticity among substitute and complementary items.
- Familiarize oneself with the impact of changing prices on the desire for associated products, categorizing them into complements and substitutes.
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