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b. Compare the absolute values of the cross-price elasticities and explain their magnitudes. For example, why is the cross-price elasticity of McDonald’s and Burger King less than the cross-elasticity of butter and margarine?
The larger (>0 i.epositive) the cross-price elasticity of demand is, the more closely the two goods are gross substitutes. Since the cross-price elasticity of butter and margarine is larger than the cross-price elasticity of McDonalds burgers and Burger King burgers butter and margarine are…

r gross substitutes than are McDonalds and Burger King burgers. Similarly, the greater (and negative) the cross-price elasticity of demand is, the more strongly the two goods are gross complements.



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