In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation, the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information
A)arugula is a normal good while raw spinach is an inferior good.
B)the cross-price elasticity between arugula and spinach is negative.
C)the cross-price elasticity between arugula and spinach is positive.
D)the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.

Question

Quizplus · Accepted Answer

The increase in demand for arugula following the recommendation to avoid raw spinach indicates that these two goods are substitutes, as consumers switched from one to the other. The positive cross-price elasticity suggests that as the price of raw spinach increases (or its availability decreases), the demand for arugula also increases, indicating that the two products are related and the price of one affects the demand for the other.

In September 2006, the Food and Drug Administration Recommended That