Suppose the cross-price elasticity of demand between quinces and muskmelons is 5.Which of the following must be true?
A)Quinces are normal goods.
B)Muskmelons are normal goods.
C)If the price of quinces rises by $5, the demand for muskmelons will increase by 1.
D)If the price of muskmelons rises by $5, the demand for quinces will increase by 1.
E)Quinces and muskmelons are substitutes.

Question

Quizplus · Accepted Answer

The positive cross-price elasticity of 5 suggests that quinces and muskmelons are substitutes, meaning that as the price of quinces increases, the demand for muskmelons, a substitute, increases. Similarly, as the price of muskmelons increases, the demand for quinces, also a substitute, increases. The statement about normal goods cannot be determined from the information given. The statement about the effect of a price increase on demand cannot be determined without knowing the initial prices and quantities.

Suppose the Cross-Price Elasticity of Demand Between Quinces and Muskmelons