Two products have a cross-price elasticity of demand of 1.5. Based on this value of cross-price elasticity, which of the following products are they most likely to be?
A)a brand of tea and a brand of sugar
B)a brand of hot dog and a brand of hot dog bun
C)a brand of juice and a brand of computer
D)two competing brands of soft drinks

Question

Quizplus · Accepted Answer

A cross-price elasticity of demand of 1.5 suggests that the two products are substitutes and share a close relationship in terms of demand. The closest relationship would be between two competing brands of soft drinks, as they are more likely to be substitutes for each other compared to the other options. Tea and sugar, hot dogs and hot dog buns, and juice and computers are not likely to have such a close relationship in terms of demand.

Two Products Have a Cross-Price Elasticity of Demand of 1