Question

At​ Frank's Delicatessen, Frank noticed that the elasticity of customers differed in the short and longer term. Frank also noticed that his increase in the price of sandwiches had other effects on his store. In​ particular, the number of sodas sold declined while the number of yogurts sold went up. How might you explain this​pattern? If soda is a complement to​ sandwiches, then the​cross-price elasticity is​ _______. Thus, as Frank loses sandwich sales from the price​ increase, he will lose soda sales as well. If​ yogurt, on the other​ hand, is a substitute for​ sandwiches, then the​ cross-price elasticity is​ _______. Thus, as the price of sandwiches​ increases, more yogurt is consumed. A. ​positive; positive B. ​negative; negative C. ​negative; positive D.​positive; negative

Answer 1

Answer:

C. Negative; Positive

Explanation:

If soda and sandwiches are complementary goods, then the cross price elasticity between them is negative. Negative cross price elasticity indicates that an increase in the price of soda would result in a fall in the quantity demand for sandwiches. On the other hand, a decrease in the price of soda would result in an increase in the quantity demanded for sandwiches.

If yogurt and sandwiches are substitute goods which means that yogart can be used in place of sandwiches or sandwiches can be used in place of yogurt. The cross price elasticity between the substitute goods is positive. Positive cross price elasticity indicates that an increase in the price of yogurt would result in an increase in the quantity demanded for sandwiches. On the other hand, a decrease in the price of yogurt would result in a fall in the quantity demanded for sandwiches.