When the Price of Milk Rose 50 Percent, the Quantity

question 184

Multiple Choice

When the price of milk rose 50 percent, the quantity of milk sold fell 25 percent and the sale of breakfast cereals also fell 25 percent. This set of facts indicates that the

• A) demand for milk is price elastic.
• B) demand for breakfast cereals is price elastic.
• C) cross elasticity between milk and cereal is negative so the two are complements.
• D) cross elasticity between milk and cereal is positive so the two are complements.

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Definitions:

Product Market

The marketplace where final goods or services are traded between sellers and consumers.

Circular-Flow Diagram

A visual model that illustrates the flow of goods and services and money between households and firms in an economy.

Household

An individual or group of people living together and making joint decisions regarding consumption and finances.

Circular-Flow Diagram

A visualization of the economy that shows how dollars flow through markets among households and firms, highlighting the interactions between product and resource markets.