The crossprice elasticity of demand between oranges and mand

The cross-price elasticity of demand between oranges and mandarins is +1.42.

a. In plain English, what does the statement mean?

b. What can you say about oranges and mandarins?

Solution

a) The cross-price elasticity of demand between oranges and mandarins is 1.42. In plain English they mean they are a substitute.

b) We can say that people use either oranges or they use mandarins. They are the substitutes when the price of one good rises the demand for the other good increases. As the cross-price elasticity of demand is 1.42 it means any increase or decrease in the price of orange by 100% will affect the demand for mandarin by more than 100%.