The Cross Price Elasticity of Demand for Pepsi with Respect

question 15

Multiple Choice

The cross price elasticity of demand for Pepsi with respect to the price of Coke has been estimated to be 0.80.If the price of Coke increases by 10 percent in a period, how will that affect the demand for Pepsi in that period, all other things unchanged?

• A) The demand for Pepsi will increase 0.80 percent.
• B) The demand for Pepsi will increase by 8 percent.
• C) The demand for Pepsi will not change because many people prefer Coke over Pepsi.
• D) The demand for Coke will fall and the demand for Pepsi will increase.

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Definitions:

Mental Prototype

A mental image or best example that embodies the most typical characteristics of a particular category or concept.

Satisficing Decisions

Solutions that aim for acceptable results rather than for the best or optimal ones.

Tactical Decisions

Short-term choices made to achieve specific objectives that are part of a larger strategic plan.

Heuristics

Shortcuts or “rules of thumb” that allow us to make judgments and decisions quickly and efficiently.