Asked by Sandy Babbie on Jul 28, 2024
Verified
You are the manager of a supermarket,and you know that the cross-price elasticity of peanut butter to jelly is exactly -2.0.Because of a bad grape harvest,grape jelly prices are expected to rise by 10% next year.To account for the change in demand,you should stock 10% more peanut butter.
Cross-price Elasticity
Measures the responsiveness of the demand for one good to a change in the price of another good.
Grape Harvest
The process of collecting grapes from the vineyards, usually seasonal and significant for wine production.
Peanut Butter
A spread made from ground, dry-roasted peanuts, often mixed with ingredients like salt, sweeteners, or emulsifiers.
- Grasp the concepts of income elasticity of demand and cross-price elasticity of demand and how they relate to goods being normal, inferior, substitutes, or complements.
Verified Answer
MS
Muhammad ShabanJul 28, 2024
Final Answer :
False
Explanation :
The cross-price elasticity of -2.0 indicates that peanut butter and jelly are complements. A 10% increase in the price of jelly would lead to a 20% decrease in the demand for peanut butter, not an increase.
Learning Objectives
- Grasp the concepts of income elasticity of demand and cross-price elasticity of demand and how they relate to goods being normal, inferior, substitutes, or complements.