Attempts
Average/1
B. Substitutes, complements, or unrelated?
You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: tappies, raskels, and
cannies. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement
that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are
typically consumed together while substitutes can take the place of other goods.
Run-of-the-Mills provides your marketing firm with the following data: When the price of tappies decreases by 20%, the quantity of raskels sold
decreases by 22% and the quantity of cannies sold increases by 7%. Your job is to use the cross-price elasticity between tappies and the other goods
to determine which goods your marketing firm should advertise together.
Complete the first column of the following table by computing the cross-price elasticity between tappies and raskels, and then between tappies and
cannies. In the second column, determine if tappies are a complement to or a substitute for each of the goods listed. Finally, complete the final
column by indicating which good you should recommend marketing with tappies.
Relative to Tappies
Cross-Price Elasticity of Demand Complement or Substitute Recommend Marketing with Tappies
Raskels
Cannies
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