If the cross elasticity of demand between peanut butter and jelly is negative,then
A)a rise in the price of peanut butter results in a rise in the equilibrium price of jelly.
B)a rise in the price of peanut butter results in a fall in the equilibrium price of jelly.
C)a rise in the price of peanut butter has no effect on the equilibrium price of jelly.
D)a fall in the price of peanut butter results in a fall in the equilibrium price of jelly.
E)peanut butter and jelly are substitutes.

Question

Quizplus · Accepted Answer

A negative cross elasticity of demand between two goods means that they are complements. This implies that an increase in the price of peanut butter will lead to a decrease in the demand for jelly and therefore, a decrease in the equilibrium price of jelly. Hence, the correct answer is B.

If the Cross Elasticity of Demand Between Peanut Butter and Jelly