Question

For the following pairs of goods, would you expect the cross-price elasticity of demand to be positive, negative, or zero? Briefly explain.

a) Peanut Butter and Jelly

b) Shoes and sandals

c) Orange Juice and Apple Juice

d) Televisions and DVD players

e) T-shirts and gasoline

Answer 1

Answer:

a) Peanut Butter and Jelly: cross elasticity of demand will be negative for peanut butter and jelly because they are complementary goods. if the price of peanut butter will increase the quantity demanded of jelly will decrease.   

b) Shoes and sandals: cross elasticity of demand will be positive because both goods are substitute of each other.

c) Orange Juice and Apple Juice: the cross elasticity of demand will be positive because orange juice and apple juice are substitute goods. the increase in the price of orange juice will increase the quantity demanded of apple juice.  

d) Televisions and DVD players: cross elasticity of demand will be negative because the televisions and DVD players are complementary goods.the increase in price of television will decrease the quantity demanded of DVD players while decrease in price of televisions will increase the quantity demanded of DVD players.   

e) T-shirts and gasoline: cross elasticity of demand will be zero because both the goods are not related to each other