Suppose that the cross price elasticity of demand for beer with respect to the price of wine is 1.2.This tells us that beer and wine are:
A) substitutes.
B) complements.
C) elastic.
D) inelastic.

Question

Quizplus · Accepted Answer

A cross price elasticity of demand greater than zero indicates that the two goods are substitutes. If the price of wine increases, people will likely switch to buying more beer instead since they are considered to be similar goods. The elasticity value of 1.2 is moderate, meaning that the degree to which people substitute beer for wine when wine becomes more expensive is relatively high but not extreme.

Suppose That the Cross Price Elasticity of Demand for Beer