Question

Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?

a) Cross-price elasticity is positive, indicating that an increase in the price of left shoes leads to an increase in the quantity demanded for right shoes.
b) Cross-price elasticity is negative, indicating that an increase in the price of left shoes leads to a decrease in the quantity demanded for right shoes.
c) Cross-price elasticity is zero, indicating that the prices of left and right shoes do not affect each other.
d) Cross-price elasticity is undefined, as the concept of left and right shoes does not apply to individual purchases.

Answer 1

The predicted cross-price elasticity for left shoes and right shoes would be negative, as they are complements; a price increase in one would lead to a decrease in the quantity demanded for the other.

Step-by-step explanation:

If we suppose you could buy shoes one at a time, rather than in pairs, we would anticipate the cross-price elasticity for left shoes and right shoes to be quite unique. The cross-price elasticity of demand concept refers to how the price of one good affects the quantity demanded of another good. When dealing with two goods that are complements, an increase in the price of one will typically lead to a decrease in the quantity demanded of the other, resulting in a negative cross-price elasticity of demand.

For left and right shoes, they are perfect complements, meaning they are almost always used together. Thus, an increase in the price of left shoes would very likely cause a decrease in the quantity demanded for right shoes, because consumers would be less inclined to buy one without the other. Therefore, the correct prediction would be: b) Cross-price elasticity is negative, indicating that an increase in the price of left shoes leads to a decrease in the quantity demanded for right shoes.