If the cross- price elasticity of Nicorette, a nicotine replacement therapy, and cigarettes is 0.7, then:
A)tobacco companies cans till make money.
B)cigarettes and Nicorette are not compatible.
C)cigarettes and Nicorette are substitutes.
D)cigarettes and Nicorette are complements.

Question

Quizplus · Accepted Answer

A positive cross-price elasticity means that the two goods are substitutes, as the increase in the price of one (cigarettes) would lead to an increase in the demand for the other (Nicorette). Therefore, cigarettes and Nicorette are substitutes. The other options are not valid based on the given information.

If the Cross- Price Elasticity of Nicorette, a Nicotine Replacement