Question

When the price of ketchup rises by 15 percent, the demand for hot dogs falls by 1 percent. a. Calculate the cross-price elasticity of demand. Instructions: Enter your response rounded to two decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Cross-price elasticity of demand: b. Are the goods complements or substitutes: c. In the original scenario, what would have to happen to the demand for hot dogs for us to conclude that hot dogs and ketchup are substitutes? The demand for hot dogs would have to decline. The demand for hot dogs would have to remain unchanged. The demand for hot dogs would have to rise.

Answer 1

Answer:

Cross Price elasticity of demand = -0.06

The Goods are complements

If the demand for Hot dogs increased by 15% or more after Ketchup prices increased by 15%, then both items will be interpreted to be substitute items.

Explanation:

Cross Price elasticity of demand = % change in quantity demanded for Hot dogs / % change in price of Ketchup

= -1% divided by 15%

= -0.06

Based on the rules,

When Cross Price elasticity is > 0 = the products are substitutes

When Cross Price elasticity is = 0 = the products are independent

When Cross Price elasticity is < 0 = the products are Complements

This means therefore that Ketchup and Hot dogs are complementary items.