The Sign of the Cross-Price Elasticity Tells Us Whether Two

question 108

Multiple Choice

The sign of the cross-price elasticity tells us whether two commodities are complements or substitutes,but the size of this elasticity measure tells us

• A)how the supply side of the market reacts to changes in demand
• B)whether the government should regulate the two markets
• C)which technology producers use
• D)how closely the two goods are related
• E)whether or not excess profits can be made in either market

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Definitions:

Penetration Pricing

A pricing strategy aimed at entering a new market by setting a low price initially to attract customers and gain market share.

Escalator Clause

A section in a contract that provides for price increases if certain, specified conditions occur.

Loss-leader Pricing

A pricing strategy where a product is sold at a loss to attract customers, with the expectation they will make additional purchases of other items at regular prices.

Elastic Demand

Demand for which a given percentage change in price results in an even larger percentage change in quantity demanded.