Homework $($Ch $05)$

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Attempts $00\mathrm{.}3$

Keep the Highest $\frac{0\mathrm{.}3}{1}$

$8.$ Substitutes, complements, or unrelated?

You work for a marketing firm that has just landed a contract with Run$-$of$-$the$-$Mills to help them promote three of their products: splishy splashers, raskels, and cannies. All of these products have been on the market for some time, but, to entice better sales, Run$-$of$-$the$-$Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods.

Run$-$of$-$the$-$Mills provides your marketing firm with the following data: When the price of splishy splashers increases by $7\%,$ the quantity of raskels sold increases by $7\%$ and the quantity of cannies sold decreases by $7\%.$ Your job is to use the cross$-$price elasticity between splishy splashers and the other goods to determine which goods your marketing firm should advertise together.

Complete the first column of the following table by computing the cross$-$price elasticity between splishy splashers and raskels, and then between splishy splashers and cannies. In the second column, determine if splishy splashers are a complement to or a substitute for each of the goods listed. Finally, complete the final column by indicating which good you should recommend marketing with splishy splashers.

Relative to Splishy Splashers

Cross$-$Price Elasticity of Demand

Complement or Substitute

Recommend Marketing with Splishy Splashers

Raskels

Cannies