If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2% increase in the price of ketchup will lead to a
A)5% drop in quantity demanded of ketchup.
B)5% 5% drop in quantity demanded of hamburgers.
C)5% increase in quantity demanded of ketchup.
D)5% increase in demanded of hamburgers.

Question

Quizplus · Accepted Answer

The cross-price elasticity of -2.5 indicates that ketchup and hamburgers are complements. A 2% increase in the price of ketchup will lead to a 5% decrease in the quantity demanded of hamburgers (2% * -2.5 = -5%).

If the Cross-Price Elasticity Between Ketchup and Hamburgers Is -2