Suppose the Cross-Price Elasticity of Demand Between Grapefruit Juice and Orange

question 245

Multiple Choice

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

• A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.
• B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.
• C) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.
• D) The demand for orange juice is 6 times more than the demand for grapefruit juice.

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Definitions:

Involuntary Conversion

The forced exchange of an asset into a different form or property, often due to theft, casualty or condemnation, with potential tax implications.

Deferred Gain

A profit from the sale of property or an investment that has been realized but not recognized for tax purposes in the current period.

IRC Section 121

A provision in the Internal Revenue Code that allows homeowners to exclude up to $250,000 ($500,000 if married filing jointly) of capital gains on the sale of their primary residence, subject to certain conditions.

Receipt of Boot

Tax term referring to non-like-kind property or cash received in an exchange, which may trigger taxable gain.