Question

If the cross- price elasticity of demand between beer and wine is 0.31, then beer and wine are complements. a. substitutes. b. price-inelastic goods. c. necessities.

Answer 1

Answer:

The answer is Substitutes.

Explanation:

For cross-price elasticity we can either have substitute goods or compliment goods. If the cross-price elasticity is positive, then the goods are substitutes and If the cross-price elasticity is negative, then the goods are compliments.

In this example, the cross-price elasticity is 0.31. This answer is postive, meaning, beer and wine are substitutes.

So 1% increase in price of wine will make demand of beer to rise by 0.31.

It can't be complement s because it is not negative.

It can't be necessities because this does not relate to cross-price elasticity