When the price of bananas rises 2 percent, the quantity demanded of peanut butter falls 4 percent
a. What is the cross elasticity of demand between these two goods?
b. How are these goods related?
c. If the price of bananas rises, how will that affect the demand curve for peanut butter?
a. The cross elasticity of demand equals -2.
b. Because the cross elasticity of demand is negative, the cross elasticity indicates that the two goods are complements.
c. If the price of bananas rises, the demand for peanut butter decreases and the demand curve for peanut butter shifts leftward.
You might also like to view...
The unemployment rate is one measure of the economic health of our nation. Explain how the existence of discouraged workers and underemployed workers may undermine the usefulness of the unemployment rate for this purpose
What is the Herfindahl-Hirschman index (HHI) in this market?
a. 1550 b. 1650 c. 1750 d. 1850
An increase in the price of gasoline above equilibrium will
A. Shift the gasoline demand curve to the right. B. Cause a surplus of gasoline. C. Shift the gasoline supply curve to the right. D. Cause a shortage of gasoline.
The marginal rate of substitution measures
A) the impact of product substitution. B) the changes in marginal utility along the indifference curve. C) the consumer's willingness to substitute one product for another so that total utility will remain unchanged. D) the consumer's willingness to substitute one product for another so that marginal utility will remain unchanged.