Question

As the price of a frozen banana decreases from $2 to $1, quantity demanded for ice cream sandwiches increases from 80 to 100. Therefore a frozen banana is a/an _____________ to ice cream sandwiches.

a) Normal good

b) Giffen good

c) Inferior good

d) Complement good

e) Substitute good

f) There’s always money in the banana stand

Answer 1

Answer
cross-price elasticity of demand=(change in quantity of x/average quantity of x)/(change in the price of y/average price of y)
change in quantity=100-80=20
average quantity=(100+80)/2=90
change in price=1-2=-1
average price=(1+2)/2=1.5

cross-price elasticity of demand=(20/90)/(-1/1.5)
=-0.333333333
=-0.33
The cross-price elasticity of demand is negative so the goods are the complement of the price of one decreases the quantity of other increases.
option d