Answer: Please refer to Explanation
Explanation:
Cross Price Elasticity of Demand measures the responsiveness of Quantity demanded of one good to the price of another good.
Remember that according to the laws of Supply and Demand when prices rise, demand drops.
When the Cross Price Elasticity is POSITIVE, it is said that the goods are SUBSTITUTES because a price increase (decrease) in one leads to more (less) of the other being demanded because they can be switched for one another like Coke and Pepsi.
When Cross Price Elasticity is NEGATIVE however then the goods are COMPLIMENTS because an increase (decrease) in the price of one good led to a reduction(increase) in demand of the other good. This proves that the goods compliment each other and so their demand moves in the same direction.
Raskals and Penguin Patties.
Cross Price ED (Raskals and Penguin Patties) = Percentage change in quantity demanded of Raskals/ Percentage change in price of Penguin Patties
Cross Price ED (Raskals and Penguin Patties) = -4%/-5%
= 0.8
This is positive so Penguin Patties and Raskels are Substitutes albeit weak ones.
Kipples and Penguin Patties.
Cross Price ED (Kipples and Penguin Patties) = Percentage change in quantity demanded of Kipples/ Percentage change in price of Penguin Patties
Cross Price ED (Kipples and Penguin Patties) = 6%/-5%
= -1.2
As it is a negative figure, Penguin Patties and Kipples are Compliments albeit weak ones as well.
