Provide an alternative product or service to the items your classmate purchased. For one item, it...

Provide an alternative product or service to the items your classmate purchased. For one item, it needs to be a complement and the other a substitute. State what that item is, and whether it is a complement or a substitute good. (e.g. Honda – I bought a Toyota, it is a substitute. Prescription drugs - complement). Also, give an estimate of the cross-price elasticity coefficient for your items (e.g. > 0, 0, or <0)

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Expert Solution

My classmate bought a a margarita pizza from Pizz Hut and I had a margarita pizza from at Dominos (Substitutes).

My classmate purchased note books and I purchased pens (Complements).

Cross price elasticity of demand is the relationship of price of a commodity to the quantity demanded of another related commodity.

Co-efficient of cross price elasticity = % change in quantity demanded / %change in price of related good. It is positive for supplements and is negative for complementary goods. (0 for unrelated goods)

Margherita Pizzas of same size and quality are almost perfect or very close supplements with cross price elasticity co-efficient of ~1 (i.e., >0) as increase in price shifts demand to competiting supplier (ceteris paribus).

The cross elasticity of complementary goods (notebooks and pens) is estimated to be < 0. With increase in price of any of these commodities not only reduce their respective demand but also reduce demand of their complements.

Rahul Sunny answered 1 year ago

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