Peanut butter and jelly are: substitutes and have a negative cross-price elastic
ID: 1192851 • Letter: P
Question
Peanut butter and jelly are:
substitutes and have a negative cross-price elasticity of demand.
complements and have a positive cross-price elasticity of demand.
inferior goods when the income elasticity of demand is positive.
complements and have a negative cross-price elasticity of demand.
substitutes and have a positive cross-price elasticity of demand.
a.substitutes and have a negative cross-price elasticity of demand.
b.complements and have a positive cross-price elasticity of demand.
c.inferior goods when the income elasticity of demand is positive.
d.complements and have a negative cross-price elasticity of demand.
e.substitutes and have a positive cross-price elasticity of demand.
Explanation / Answer
are substitutes and have a positive cross price elasticity of demand .Clearly peanut butter and jelly are substitutes as both can be used with bread alternatively.In case of substitutes cross price elasticity is positive.This is because as the price of one good falls it becomes cheaper , thus its quantity demanded will rise and the quantity demanded of the substitute will fall as both are substitutes.Similarly increase in prices of good1, decreases good1's quantity demanded but increases quantity demanded of the 2nd good as both are substitutes.
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