Question

Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product. In other words, she would need to know if the cross-price elasticity of demand for the products _____.

A)is positive
B)is negative
C)is unity
D)is zero
E)is infinite

Answer 1

A) is positive.

Step-by-step explanation:

A substitute product can be defined as a product that a consumer sees as an alternative to another product and as such would offer similar benefits or satisfaction to the consumer.

Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product. In other words, she would need to know if the cross-price elasticity of demand for the products is positive.

A cross-price elasticity of demand can be defined as a measure of the responsiveness of the quantity of a product demanded with respect to the change in price of a related product, all things being equal.

For substitute products (goods), the cross-price elasticity of demand is always positive because the demand of a product increases when the price of its close substitute (alternative) increases.