Which pair of goods is likely to have the largest positive cross-price elasticity?
A) Peanut butter and jelly
B) Butter and margarine
C) Ramen noodles and a Rolex watch
D) Cross-price elasticity is always negative, and simply reported in absolute value.

Question

Quizplus · Accepted Answer

Butter and margarine are very close substitutes, so a change in the price of one will have a large effect on the demand for the other. Therefore, the cross-price elasticity between these two goods is likely to be the largest positive value among the choices given.

Which Pair of Goods Is Likely to Have the Largest