Cross Elasticity Question...?

Question

Here's the Diagram: http://tinypic.com/view.php?pic=1tpmrq&s=4

Here's the Question:

See what happens to the demand for tickets to Paris if the price of a ticket to London changes. (To do this, plug some other numbers into the "Airfare from JFK to LHR" box.) From the behavior of the demand curve, you can tell that the cross elasticity of demand between tickets to London and tickets to Paris is _______; therefore, these two goods are ______.

A. Equal to 1; substitutes

B. Equal to 1; complements

C. Negative; complements

D. Positive; complements

E. Positive; substitutes

F. Negative; substitutes

Note the initial and current values though. I don't know how to get the quantity part of the Ey = % change Quantity/ % change in price of another good.

Answer 1

well, i do know that the goods are substitutes, because you would only buy one or the other; unlike peanut butter and jelly where you pretty much need both to make a decent sandwhich.

as for the first blank, i would probably say positive. think about it. if demand goes down, its a negative percentage which would cause price to go down, which is also a negative, cancelling out the first negative.

the only problem is knowing whether the percentages that demand goes down is about equal to the percentage change in price. i think this is where your teacher wants you to use the box to plug things in. if the slope = 1, then they are perfect substitutes. if not, just use positive.

so i'd say the answer is either A or E