Question

Which scenario below is an example of complementary products, based on their cross-price elasticity?A. Bananas and lettuce, with an elasticity of 0. B. Shampoo and conditioner, with an elasticity of 3.5. C. Coffee and tea, with an elasticity of 2.25. D. Green salsa and red salsa, with an elasticity of 2.75.

Answer 1

Answer: B. Shampoo and conditioner, with an elasticity of -3.5.

Explanation:

Complimentary products are those which see their quantity demanded move together because the goods usually compliment each other like tea and sugar.

Their Cross-price elasticity shows this by being a negative figure. This is because when the price of one commodity goes up, the quantity demanded of the other goes down because higher prices lead to lower quantity demanded.

The actual question showed that Conditioner and Shampoo had a cross-price elasticity of -3.5 so this is the correct answer.