Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?
A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.
B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.
C) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.
D) The demand for orange juice is 6 times more than the demand for grapefruit juice.

Question

Quizplus · Accepted Answer

A cross-price elasticity of 6 means that a 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in the quantity demanded of orange juice, indicating they are substitutes.

Suppose the Cross-Price Elasticity of Demand Between Grapefruit Juice and Orange