If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and Pepsi are
A) inferior goods.
B) complements.
C) normal goods.
D) substitutes.
E) Both answers B and C are correct.

Question

Quizplus · Accepted Answer

A cross elasticity of demand greater than 1 indicates that the goods are substitutes, meaning that an increase in the price of one good will cause an increase in demand for the other good. Therefore, the correct choice is D, substitutes.

If the Cross Elasticity of Demand Between Coke and Pepsi