Question

Which of the following is true of product line pricing?

A) Products that have a negative cross-price elasticity are substitutes.

B) Products that have a positive cross-price elasticity are complementary products.

C) It is not necessary to know the degree to which a product has cross-price elasticity with other products.

D) As a business adds more products to its product line, it decreases the risk of cannibalizing existing product sales.

E) Adding more products to a business's product line enhances sales growth.

Answer 1

Products that have a positive cross-price elasticity are complementary products. Option B

Step-by-step explanation:

Cross-price elasticity of demand is a measure of how the quantity demanded of one product changes in response to a change in the price of another product. If two products have a positive cross-price elasticity, it means they are substitutes.

This means that when the price of one product increases, the quantity demanded for the other product also increases. Complementary products, on the other hand, have a negative cross-price elasticity. This means that when the price of one product increases, the quantity demanded for the other product decreases.

For example, if the price of coffee increases, people may switch to drinking tea instead, resulting in an increase in the quantity demanded for tea. This indicates that coffee and tea are substitute goods. On the other hand, if the price of coffee increases, people may reduce their consumption of sugar, indicating that coffee and sugar are complementary goods. Option B