If margarine and butter are substitutes, then their cross-elasticity coefficient will be:
A) strictly greater than one.
B) positive.
C) equal to zero.
D) negative.

Question

Quizplus · Accepted Answer

Cross-elasticity of demand measures the responsiveness of demand for a particular good to a change in the price of another related good. As margarine and butter are substitutes, an increase in the price of butter would likely cause an increase in the demand for margarine. So, their cross-elasticity coefficient will be positive.

If Margarine and Butter Are Substitutes, Then Their Cross-Elasticity Coefficient