If bagels and cereal are substitutes, then the cross-price elasticity of demand between bagels and cereal will be:
A)greater than one.
B)less than one.
C)greater than zero.
D)less than zero.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is defined as the percentage by which the quantity demanded of the first good changes in response to a one percent change in the price of the second. In the case of substitutes, an increase in the price of one good will increase demand for the other, leading the cross-price elasticity of demand to be positive.

If Bagels and Cereal Are Substitutes, Then the Cross-Price Elasticity