Jack in the Box recently estimated cross-proce elasticity of demand for large drinks with respect to...

Jack in the Box recently estimated cross-proce elasticity of demand for large drinks with respect to the price of medium drinks to be 3.5. Given this information are large drinks and medium drinks substitutes or complements?

complements

substitutes

cannot be determined

Solutions

Expert Solution

Answer is “Substitute goods”

With cross price elasticity of 3.5 , meaning demand for large drinks increase with respect to increase in price of medium drinks then they are substitute goods. Substitute goods have positive cross-price elasticities of demand

If good A is a substitute for good B, like coffee and tea, then a higher price for B will mean a greater quantity of A consumed. Complement goods have negative cross-price elasticities

Rahul Sunny answered 2 years ago

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