Is the cross-price elasticity of demand between petrol and large not-very-fuel-efficient SUVs positive or negative?

Marketing Dec 22, 2020

Expert Solution

The cross-price elasticity of demand between petrol and large not-very-fuel-efficient SUVs is negative because the cross-price elasticity of demand is negative in the case of two complementary goods. In other words, when two goods are complementary to one another, at that point the percentage rise in the price of one good will lead to a given percentage fall in the demand for its complement i.e other good. For instance, for this situation, an increase in the cost of petrol will prompt a decrease in demand for large not-very-fuel-efficient SUVs in light of the fact that the two are complementary goods and are jointly demanded.

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