Question

The cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that_____________
A) the two brands are probably made by the same company.
B) detergents are necessities.
C) the two brands of detergent are close substitutes
D) consumers have a distinct preference for one brand versus the other

Answer 1

Answer:  Option C

                                             

Explanation: In simple words, substitute goods refers to the goods which can be used in place of one other. Coke and Pepsi are one of many examples of substitute goods.

Cross price elasticity refers to the degree of change in demand of one good with respect to change in demand for some other good. Substitute goods share positive elasticity as when the price of one good increase consumers shift their demand to the substitute as the utility satisfaction from the two is almost equal.

Hence from the above we can conclude that the correct option is C.