Question

Macroeconomics

Posted 3 months ago

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The makers of a brand of potato chip know that the prices of other products might increase soon. The cross-price elasticity of potato chips and four other goods are given below.
\begin{tabular}{ll}
Other good & Value of cross-price elasticity when the price of the other good changes \\
\hline Product W & -2 \\
Product $X$ & -0.5 \\
Product $Y$ & 1 \\
Product $Z$ & 3
\end{tabular}
Which product is the most complementary for chips?
Choose 1 answer:
(A) Product W
(B) Product $X$
(c) Product $Y$
(D) Product $Z$
(E) Product $Y$ or $Z$
```

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Answer from Sia

Posted 3 months ago

Solution

a

Understanding Cross-Price Elasticity: Cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. It is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of the other good

b

Identifying Complements and Substitutes: If the cross-price elasticity of demand is negative, the two goods are complements; if it is positive, they are substitutes. The greater the absolute value of the negative cross-price elasticity, the stronger the complementary relationship

c

Analyzing the Given Data: Based on the provided cross-price elasticities, Product W has the highest absolute value of negative cross-price elasticity (-2), indicating that it is the most complementary to chips

Answer

Product W

Key Concept

Cross-Price Elasticity of Demand

Explanation

The product with the highest absolute value of negative cross-price elasticity is the most complementary to another product. In this case, Product W, with a cross-price elasticity of -2, is the most complementary to chips.

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