Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.80. This means that apple sauce and avocados are _____, while soda and oranges are _____.
A)complements; substitutes
B)substitutes; complements
C)inelastic goods; elastic goods
D)elastic goods; complements

Question

Quizplus · Accepted Answer

The positive cross-price elasticity of 0.96 between apple sauce and avocados indicates that they are substitutes (as the price of one increases, the demand for the other increases). The negative cross-price elasticity of -0.80 between soda and oranges indicates they are complements (as the price of one increases, the demand for the other decreases).

Suppose the Cross-Price Elasticity of Demand for Apple Sauce and Avocados