If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2 percent increase in the price of ketchup will lead to a:
A) 5 percent drop in quantity demanded of ketchup.
B) 5 percent drop in quantity demanded of hamburgers.
C) 5 percent increase in quantity demanded of ketchup.
D) 5 percent increase in quantity demanded of hamburgers.

Question

Quizplus · Accepted Answer

The negative cross-price elasticity indicates that ketchup and hamburgers are complementary goods. When the price of ketchup increases, the demand for hamburgers will decrease proportionately. Therefore, a 2 percent increase in the price of ketchup will lead to a 5 percent drop in quantity demanded of hamburgers. The other answer choices do not take into account the relationship between ketchup and hamburgers as complementary goods.

If the Cross-Price Elasticity Between Ketchup and Hamburgers Is -2