Business people speak about cross elasticity of demand without using the actual term. Which one of the following statements reflects cross elasticity of demand?
A)"A price cut won't help me. It won't increase sales, and I'll just get less money for each unit."
B)"I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose on the lower price."
C)"My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store and sales are booming."
D)"With the recent economic recovery, people have more income to spend and sales are booming, even at the previous prices."
E)"Since the price of gasoline fell at the neighbouring station, my milk sales have been booming."

Question

Quizplus · Accepted Answer

The statement "Since the price of gasoline fell at the neighboring station, my milk sales have been booming" reflects cross elasticity of demand. This is because the change in the price of gasoline (a substitute product) has affected the demand for milk. As the price of gasoline fell, customers may have more disposable income to spend on other goods (like milk), or they may be more likely to drive to the store (increasing foot traffic). The fact that the change in gasoline prices is affecting milk sales shows that there is cross elasticity of demand between these two products.

Business People Speak About Cross Elasticity of Demand Without Using