When the price of milk rose 50 percent, the quantity of milk sold fell 25 percent and the sale of breakfast cereals also fell 25 percent. This set of facts indicates that the
A) demand for milk is price elastic.
B) demand for breakfast cereals is price elastic.
C) cross elasticity between milk and cereal is negative so the two are complements.
D) cross elasticity between milk and cereal is positive so the two are complements.

Question

Quizplus · Accepted Answer

The cross elasticity between milk and cereal is negative, indicating that the two are complements. This means that when the price of milk increases, the demand for cereal decreases, and vice versa.

When the Price of Milk Rose 50 Percent, the Quantity