An economist estimated the cross-price elasticity for peanut butter and jelly to be -1.5.Based on this information,we know the goods are
A)inferior goods.
B)complements.
C)inelastic.
D)substitutes.

Question

An economist estimated the cross-price elasticity for peanut butter and jelly to be -1.5.Based on this information,we know the goods are
A)​inferior goods.
B)complements.
C)inelastic.
D)​substitutes.

Quizplus · Accepted Answer

A negative cross-price elasticity indicates that the goods are complements, meaning that when the price of one good (peanut butter) increases, the demand for the other good (jelly) decreases. The magnitude of -1.5 indicates that the relationship is strong, meaning that a 1% increase in the price of peanut butter will result in a 1.5% decrease in the quantity of jelly demanded.

An Economist Estimated the Cross-Price Elasticity for Peanut Butter and Jelly