Question

Are Pepsi and Coke likely to have a positive or negative cross-price elasticity of demand? Why?

Answer 1

Pepsi and Coke have positive cross-price elasticity of demand because they are substitute goods, leading to consumers switching between them as prices change.

Step-by-step explanation:

Pepsi and Coke are likely to have a positive cross-price elasticity of demand. This is because they are substitute goods; if the price of one increases, consumers are more likely to purchase the other. For example, if the price of Coke goes up, some consumers will switch to buying Pepsi instead, and vice versa.