Suppose that when the price of root beer rises 1%, the quantity of hotdogs demanded falls 0.5%. This would mean that hotdogs and root beer are
A) substitutes, with a cross price elasticity of 0.5.
B) complements, with a cross price elasticity of -0.5.
C) substitutes, with a cross price elasticity of -2.0.
D) complements, with a cross price elasticity of -2.0.

Question

Quizplus · Accepted Answer

The negative sign indicates that hotdogs and root beer are complements. The magnitude of the cross price elasticity is 0.5, which means that for a 1% increase in the price of root beer, the quantity of hotdogs demanded falls by 0.5%.

Suppose That When the Price of Root Beer Rises 1