If the cross price elasticity of demand for Pepsi with respect to the price of Coca Cola is -0.64, then(please choose all the answers that are correct) Pepsi is a substitute for Coca Cola. Pepsi is a complement for Coca Cola Pepsi is more preferred than Coca Cola. a decrease in the price of Coca Cola will cause demand for Pepsi Cola to increase. Pepsi is less preferred than Coke an increase of 10% in the price of Coca Cola will cause demand for Pepsi Cola decrease by 6.4%.

Inelastic means that when the price goes up, consumers’ buying habits will remain the same, and when the price goes down, consumers’ buying habits also remain unchanged. In other words, Demand for a good is inelastic when a change in price has a relatively small effect on the quantity of the good demanded. For example People who bought the car have to buy petrol at any price. People who smoke become addicted so willing to pay a higher price. Salt has no close substitutes The option Pepsi is less preferred than coke because coke's price is increasing but demand is not decreasing as much as prices are increases. Demand is less decreasing it means that people did not mind if prices are increasing of coca-cola. The option an increase of 10% in the price of coca-cola will cause demand for Pepsi decrease by 6.4% Is correct because Therefore PED = -.64

Answered: If the cross price elasticity of demand…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the cross price elasticity of demand for Pepsi with respect to the price of Coca Cola is -0.64, then

(please choose all the answers that are correct)

		Pepsi is a substitute for Coca Cola.
		Pepsi is a complement for Coca Cola
		Pepsi is more preferred than Coca Cola.
		a decrease in the price of Coca Cola will cause demand for Pepsi Cola to increase.
		Pepsi is less preferred than Coke
		an increase of 10% in the price of Coca Cola will cause demand for Pepsi Cola decrease by 6.4%.

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