Suppose the price of salt increases by 25 percent and, as a result, the quantity of pepper demanded (holding the price of pepper constant) increases by 4 percent. The cross-price elasticity of demand between salt and pepper is nothing. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, salt and pepper are ▼ substitutes not related complements. Instead, suppose salt and pepper were complements. If so, then the cross-price elasticity of demand between salt and pepper would be A. negative. B. zero. C. positive. D. greater than 1. E. greater than minus1.

Question

Business

Sullivan Nunez

23 January, 10:32

Suppose the price of salt increases by 25 percent and, as a result, the quantity of pepper demanded (holding the price of pepper constant) increases by 4 percent. The cross-price elasticity of demand between salt and pepper is nothing. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, salt and pepper are ▼ substitutes not related complements. Instead, suppose salt and pepper were complements. If so, then the cross-price elasticity of demand between salt and pepper would be A. negative. B. zero. C. positive. D. greater than 1. E. greater than minus1.

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Answers (1)

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Nylah Mcgrath · Answer 1

Option (C)

Explanation:

As per the data given in the question,

Price of salt increases by = 25%

Quantity of pepper demanded increases by = 4%

Cross price elasticity = Quantity of demand increases : Price of salt increases

= 4% : 25%

=0.16

Hence Cross-price elasticity of demand between salt and pepper would be positive.

So option (C) is answer