The price of one brand of juice rises 20% and demand for a rival brand rises 10%. What is the cross elasticity?

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Question

The price of one brand of juice rises 20% and demand for a rival brand rises 10%. What is the cross elasticity?

Accepted Answer

+0.5, so they are substitutes but not especially close ones — 5, so they are substitutes but not especially close ones. Award 1 mark. Working: 10 ÷ 20 = +0.5. The sign gives the relationship and the magnitude gives its strength.

Answer

+0.5, so they are substitutes but not especially close ones

Answer

+0.5, so the rival brand is a luxury

Answer

+2.0, so they are very close substitutes

Answer

−0.5, so they are complements

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