A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda.This means that
A)root beer and orange soda are substitutes
B)root beer and orange soda are complements
C)the cross-price elasticity of demand is elastic
D)the cross-price elasticity of demand is equal to 2
E)the cross-price elasticity of demand is equal to -2

Question

Quizplus · Accepted Answer

If an increase in the price of one good (root beer) leads to an increase in the quantity demanded for another good (orange soda), then these goods are substitutes. This is because consumers are substituting one good for the other as the price of one increases. The cross-price elasticity of demand would be positive in this case, indicating a direct relationship between the two goods, but we cannot determine the exact number without more information.

A 10 Percent Increase in the Price of Root Beer