Suppose the cross-price elasticity between demand for Chipotle burritos and the price of Qdoba burritos is 0.8.If Qdoba increases the price of its burritos by 10%:
A)Chipotle will sell 10% more burritos.
B)Chipotle will sell 8% more burritos.
C)Chipotle will sell 8% fewer burritos.
D)We cannot tell what will happen to Chipotle,but Qdoba will sell 8% fewer burritos.

Question

Quizplus · Accepted Answer

The positive cross-price elasticity coefficient indicates that Chipotle and Qdoba burritos are substitutes, meaning that when the price of Qdoba burritos increases, consumers are likely to switch and purchase Chipotle burritos instead. A coefficient of 0.8 means that for every 1% increase in the price of Qdoba burritos, the quantity demanded of Chipotle burritos will increase by 0.8%. Therefore, if Qdoba increases the price of its burritos by 10%, the quantity demanded of Chipotle burritos will increase by 8% (0.8 x 10). Hence, option B is correct.

Suppose the Cross-Price Elasticity Between Demand for Chipotle Burritos and the Price