Which of the following pairs of goods is most likely to have a cross-price elasticity of demand greater than zero?

• A. Printers and ink cartridges
• B. Bread and butter
• C. Coffee and tea
• D. Gasoline and automobiles

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of cross-price elasticity of demand, which measures how the quantity demanded of one good responds to a change in the price of another good. It is calculated as: \[\text{Cross-price elasticity} = \frac{\% \text{ change in quantity demanded of good A}}{\% \text{ change in price of good B}}\]
2. Step 2: Recall that if the cross-price elasticity is greater than zero, the two goods are substitutes. This means that an increase in the price of one good leads to an increase in the demand for the other good.
3. Step 3: Analyze each pair of goods: - Printers and ink cartridges are complements (used together), so their cross-price elasticity is likely negative. - Bread and butter are also complements, so their cross-price elasticity is likely negative. - Coffee and tea are substitutes, so their cross-price elasticity is likely positive. - Gasoline and automobiles are complements, so their cross-price elasticity is likely negative.
4. Step 4: Identify the pair with a positive cross-price elasticity, which is the pair of substitute goods where an increase in the price of one leads to an increase in demand for the other.
5. Step 5: Conclude that the pair with cross-price elasticity greater than zero is the one that consists of substitute goods, such as coffee and tea.