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:

Negative cross-price elasticity of demand

Positive cross-price elasticity of demand

Price inelasticity of demand

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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