Question

Would you expect the cross price elasticity to be positive or negative for the following set...

Would you expect the cross price elasticity to be positive or negative for the following set of goods?

(a) Hot dogs and hot dog buns.

(b) Gasoline and electric cars.

(c) Coffee and tea

(d) Beer and pretzels

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Answer #1

a ) hot dogs and its buns are complement, hence the cross price elasticity will be negative i.e. if the price of the hot dogs increase the demand for the hot dogs buns will decrease.

b) They are substitute hence the cross price elasticity will be positive.

c) Coffee and Tea are also substitute so the cross price elasticity will be positive.

d) beer and pretzels are complement so the cross price elasticity will be negative.

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