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) smaller; larger
C) larger; smaller
D) larger; larger

Question

Quizplus · Accepted Answer

When two goods are more substitutable, the cross elasticity of demand is larger because a change in the price of one good will lead to a significant change in the quantity demanded of the other. Similarly, the elasticity of demand for Northwest timber will also be larger because consumers will be more responsive to price changes when there are close substitutes available.

The Greater the Substitutability Between Northwest Timber and Southeast Timber