The cross-price elasticity between Coke and Pepsi has been estimated at about 0.7,which indicates that _____
A)the two goods are substitutes.
B)the two goods are complements.
C)Coke is a substitute and Pepsi is a complement.
D)Pepsi is a substitute and Coke is a complement.
E)the two goods are income elastic.

Question

Quizplus · Accepted Answer

A cross-price elasticity of 0.7 indicates that Coke and Pepsi are substitutes. This means that if the price of Coke were to increase, consumers would switch to buying more Pepsi instead. Likewise, if the price of Pepsi were to increase, consumers would switch to buying more Coke instead. Complements have a negative cross-price elasticity, meaning that if the price of one good increases, the demand for the other good decreases.

The Cross-Price Elasticity Between Coke and Pepsi Has Been Estimated