Question

Coke and Pepsi are substitutes if:________a) the demand for Coke increases when the price of Pepsi fallsb) the demand for Coke increases when the price of Pepsi risesc) the supply of Coke increases when the price of Pepsi fallsd) the demand for Coke and Pepsi rise and fall together

Answer 1

The answer is B. the demand for Coke increases when the price of Pepsi rises

Step-by-step explanation:

For substitute goods, an increase in price of one good and service would increase the demand of its substitute goods and vice-versa.

This means that the cross-price elasticity of demand is positive.

It is negative if the cross-price elasticity of demand is negative i.e. the two goods can be consumed together as a pair such as petrol(fuel) and cars.

Consumers can easily switch from either pepsi or coke if the price of either of the two becomes higher compared to the other.