5.3 Cross Elasticity and Income Elasticity
MyEconLab Concept Video
Domino’s Pizza in Chula Vista has a problem. Burger King has just cut its prices. Domino’s manager, Pat, knows that pizzas and burgers are substitutes. He also knows that when the price of a substitute for pizza falls, the demand for pizza decreases. But by how much will the quantity of pizza bought decrease if Pat maintains his current price?
Pat also knows that pizza and soda are complements. He knows that if the price of a complement of pizza falls, the demand for pizza increases. So he wonders whether he might keep his customers by cutting the price he charges for soda. But he wants to know by how much he must cut the price of soda to keep selling the same quantity of pizza ...
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