Question

The cross-price elasticity of demand between American Eagle and Hollister is 2.0. What does

that coefficient tell us about the relationship between these two stores? I

Answer 1

Suggests that these are substitute goods

Step-by-step explanation:

Demand cross elasticity measures the percentage change in the quantity demanded of a good given a percentage change in the price of another substitute good. Thus, the calculation of elasticity being 2, suggests that a percentage increase in the price of one store will increase the demand for products of the other store. In other words, a 1% increase in the price of one store will cause consumers to buy two units in the other store, replacing the store product whose price has increased.