Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for Joe the cross elasticity of demand for peanut butter with respect to jelly is
A) positive because jelly and peanut butter are substitutes.
B) positive because jelly and peanut butter are complements.
C) negative because jelly and peanut butter are substitutes.
D) negative because jelly and peanut butter are complements.

Question

Quizplus · Accepted Answer

The cross elasticity of demand is negative for complements because an increase in the price of one good (e.g., jelly) leads to a decrease in the demand for the other good (e.g., peanut butter), indicating that they are used together.

Joe Likes Peanut Butter and Jelly Sandwiches for Lunch