Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7.This implies that the two goods are:
A)substitutes.
B)complements.
C)inferior.
D)normal.

Question

Quizplus · Accepted Answer

A positive cross-price elasticity of demand indicates that the two goods are substitutes, meaning that an increase in the price of one good leads to an increase in demand for the other good. In this case, an increase in the price of Coke will lead to an increase in demand for Mountain Dew, indicating that they are substitutes.

Suppose That the Cross-Price Elasticity of Demand for Mountain Dew