Question

For which pairs of goods is the cross-price elasticity most likely to be positive?a. peanut butter and jellyb. bicycle frames and bicycle tiresc. pens and pencilsd. college textbooks and iPod

Answer 1

Answer: Option C -- Pens and Pencils

Explanation: Cross- Price elasticity of demand measures the change in demand of one commodity/goods in response to change in price of another commodity/goods.

The positivity of cross-price elasticity comes in when two goods/commodities can substitute each other. If two goods can substitute each other, therefore the cross-price elasticity value will be positive. A good/commodity can be described as substitute goods when the increase in price of one good/commodity leads to increase in demand for the substitute good. In this scenario, if the price of pen increases, consumers may purchase less pen and more pencil.