Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13.This means that butter and margarine are _____,while water and lemons are _____.
A)complements;substitutes
B)substitutes;complements
C)inelastic goods;elastic goods
D)elastic goods;complements

Question

Quizplus · Accepted Answer

Butter and margarine, with a positive cross-price elasticity of 0.96, are substitutes because as the price of one increases, the demand for the other increases. Water and lemons, with a negative cross-price elasticity of -0.13, are complements because as the price of one increases, the demand for the other decreases.

Suppose the Cross-Price Elasticity of Demand for Butter and Margarine