You are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross- price elasticity of demand between your flowers and your competitor's flowers to be 2.60. Using this information, which of the following statements is true?
A)The flowers from the two shops are substitutes.
B)The flowers from the two shops are complements.
C)If your competitor decreases the price of her flowers, the demand for your flowers will increase.
D)If your competitor increases the price of her flowers, the demand for your flowers will decrease.

Question

Quizplus · Accepted Answer

A cross-price elasticity of demand of 2.60 indicates that the flowers from the two shops are substitutes. This means that if the price of your competitor's flowers were to increase, the demand for your flowers would likely increase as well. Conversely, if the price of your flowers were to increase, the demand for your competitor's flowers would likely increase as well.

You Are the Manager of a Local Flower Shop and You