A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda.This means that _____
A)root beer and orange soda are substitutes.
B)root beer and orange soda are complements.
C)the cross-price elasticity of demand is 1.
D)the cross-price elasticity of demand is equal to 2.
E)the cross-price elasticity of demand is equal to −2.

Question

Quizplus · Accepted Answer

A 10 percent increase in the price of root beer causing a 5 percent increase in the quantity demanded of orange soda indicates that root beer and orange soda are substitutes. When the price of root beer increases, consumers switch to the relatively cheaper substitute which is orange soda, leading to an increase in its demand. Therefore, the best choice is A.

A 10 Percent Increase in the Price of Root Beer