The cross elasticity of demand for butter and margarine is likely to be
A) negative because they are complements.
B) positive because they are normal goods.
C) negative because they are substitutes.
D) positive because they are substitutes.
E) positive because they are complements.

Question

Quizplus · Accepted Answer

The cross elasticity of demand between substitutes is positive because as the price of one good increases, the demand for the substitute good increases as well. Butter and margarine are substitutes, so if the price of butter increases, people are likely to buy more margarine, indicating a positive cross elasticity of demand.

The Cross Elasticity of Demand for Butter and Margarine Is