For which pairs of goods is the cross-price elasticity of demand most likely to be positive?

• A. Tea and coffee
• B. Printers and ink cartridges
• C. Bread and butter
• D. Gasoline and cars

Answer: (A)

Verified step by step guidance

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. Recall that if the cross-price elasticity is positive, the two goods are substitutes, meaning that an increase in the price of one good leads to an increase in the demand for the other good.
3. If the cross-price elasticity is negative, the goods are complements, meaning that an increase in the price of one good leads to a decrease in the demand for the other good.
4. Analyze each pair of goods: - Tea and coffee are substitutes (people switch between them), so their cross-price elasticity is likely positive. - Printers and ink cartridges are complements (used together), so their cross-price elasticity is likely negative. - Bread and butter are complements, so their cross-price elasticity is likely negative. - Gasoline and cars are complements, so their cross-price elasticity is likely negative.
5. Conclude that the pair with the most likely positive cross-price elasticity is the pair of substitute goods, which in this case is tea and coffee.