If the cross-price elasticity between ketchup and hamburgers is −1.2,a 4 percent increase in the price of ketchup will lead to a 4.8 percent:
A) drop in quantity demanded of ketchup.
B) drop in quantity demanded of hamburgers.
C) increase in quantity demanded of ketchup.
D) increase in quantity demanded of hamburgers.

Question

Quizplus · Accepted Answer

The negative cross-price elasticity of -1.2 indicates that ketchup and hamburgers are complements. A 4% increase in the price of ketchup leads to a 4.8% drop in the quantity demanded of hamburgers, as the formula for cross-price elasticity is (% change in quantity demanded of good Y) / (% change in price of good X).

If the Cross-Price Elasticity Between Ketchup and Hamburgers Is −1