Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03.These elasticities mean that beer and spirits are ________, and spirits and wine are ________.
A)complements; luxuries
B)normal goods; luxuries
C)complements; substitutes
D)substitutes; luxuries

Question

Quizplus · Accepted Answer

The negative cross-price elasticity of demand between beer and spirits (-0.50) indicates that they are complements. The positive income elasticities for spirits (1.21) and wine (5.03) indicate that they are luxuries, as they are greater than 1.

Economists Have Estimated That the Cross-Price Elasticity of Demand Between