ExpertHard2 marksMultiple Choice
ACCA · Question 03 · The business organisation and its external environment
SynthoMeat Ltd produces lab-grown synthetic beef. Recently, the price of traditional farmed beef increased by 15%, leading to a 25% increase in the demand for SynthoMeat's products. What economic concept does this relationship demonstrate?
SynthoMeat Ltd produces lab-grown synthetic beef. Recently, the price of traditional farmed beef increased by 15%, leading to a 25% increase in the demand for SynthoMeat's products. What economic concept does this relationship demonstrate?
Answer options:
A.
Negative cross-price elasticity of demand
B.
Positive cross-price elasticity of demand
C.
Price inelasticity of demand
D.
Income elasticity of demand
How to approach this question
Identify the relationship between the two products. They are substitutes. An increase in the price of one leads to an increase in demand for the other, which is a positive correlation.
Full Answer
B.Positive cross-price elasticity of demand✓ Correct
Cross-price elasticity measures the responsiveness of demand for Good A to a change in price of Good B. A positive result indicates the goods are substitutes.
Common mistakes
Confusing cross-price elasticity with own-price elasticity or income elasticity.
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