Question

Provide an example of a pair of products that you would consider to have a positive cross price elasticity. Provide another example of a pair of products you would expect to be negative. Is there a scenario where someone else might view them in the opposite way?

Answer 1

Positive cross price elasticity of demand exist between substitute and example for this is Pepsi and Coca-Cola where they have positive cross price elasticitybecause both can be substituted to each other or if the price of Pepsi increases the demand for Coca Cola increases and vice versa.

Example of negative cross price elasticity of demand is for complementary goods where if the price of one good increases, demand for anotherincreases and vice versa and one example for this is gasoline and automobiles where is the price of gasoline increases the demand for automobile decreases.

Consider a scenario wherethere was a claim on one of the soft drinks that it is actually bad for health as a result of which the price decreases to promote more consumption and this can trigger the people's opinion that consuming soft drinks can overall lead to damage dealt as a result of which claim on one softlink might lead to decrease in the demand for another as well as a result of which both the soft drinks have reduced demand and here it can work in an opposite way where instead of postive cross price elasticity there can be a chance of negative.