The greater the substitutability between Northwest timber and Southeast timber, the _______ is the cross elasticity of demand between timber from the two regions and the _______ is the elasticity of demand for Northwest timber.
A) smaller; smaller
B) larger; larger
C) larger; smaller
D) smaller; larger

Question

Quizplus · Accepted Answer

The greater the substitutability between two goods, the larger the cross elasticity of demand, as consumers will more readily switch from one to the other if the price changes. Similarly, if Northwest timber has many substitutes (including Southeast timber), the demand for it becomes more elastic, as consumers can easily switch to alternatives if the price of Northwest timber rises.

The Greater the Substitutability Between Northwest Timber and Southeast Timber