Economists estimated that the cross-price elasticity of demand for beer and wine is 0.31 and the income elasticity of wine is 5.03.This means that
A)beer and wine are substitutes and wine is an inferior good.
B)beer and wine are complements and wine is a luxury good.
C)beer and wine are substitutes and wine is a luxury good.
D)beer and wine are complements and wine is an inferior good.

Question

Quizplus · Accepted Answer

The positive cross-price elasticity of demand suggests that beer and wine are substitutes, meaning that a rise in the price of beer will increase the demand for wine. Additionally, the high income elasticity of demand for wine indicates that it is a luxury good, as consumers are willing to purchase more of it as their income rises. Therefore, beer and wine are substitutes and wine is a luxury good.

Economists Estimated That the Cross-Price Elasticity of Demand for Beer