Question

For each of the following pairs, predict whether the cross-price elasticity of demand will be positive or negative:

a. Soap and hand sanitizer.
b. CDs and MP3s.
c. Sheets and pillowcases.

Answer 1

a) Positive.

b) Positive.

c) Negative.

Step-by-step explanation:

a. Soap and hand sanitizer.- Positive cross elasticity of demand.

b. CDs and MP3s.- Positive cross elasticity of demand.

c. Sheets and pillowcases.- Negative cross elasticity of demand.

Cross price elasticity of demand are used as tool to measure the demand of one product by the change in price of related product like subtitute or complimentry goods and service. It is calculated by using ratio or percentage change in quantity demanded by percentage change in price of a related goods.