When the price of milk rose 50 per cent, the quantity of milk sold fell 25 per cent and the sale of breakfast cereals also fell 25 per cent. This set of facts indicates that the
A) cross elasticity between milk and cereal is negative so the two are complements.
B) demand for breakfast cereals is price elastic.
C) cross elasticity between milk and cereal is positive so the two are complements.
D) demand for milk is price elastic.

Question

Quizplus · Accepted Answer

The decrease in the quantity of milk sold and the concurrent decrease in the sale of breakfast cereals when the price of milk rose indicates that milk and cereals are complements (used together). Cross elasticity between complements is negative, as the increase in the price of one leads to a decrease in the demand for the other.

When the Price of Milk Rose 50 Per Cent, the Quantity