Question

Which of the following has zero cross elasticity of demand?

• A. Paddy and Wheat
• B. Butter and Mango
• C. Ink and Pen
• D. Bread and Butter

Hint:

Cross Elasticity of Demand ($E_{xy}$):
Positive ($E_{xy} > 0$) = Substitutes (Paddy/Wheat, Tea/Coffee).
Negative ($E_{xy} < 0$) = Complements (Bread/Butter, Car/Fuel).
Zero ($E_{xy} = 0$) = UNRELATED goods (Butter/Mango).

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Cross-Price Elasticity of Demand ($E_{xy}$): completely unrelated, independent goods exhibit zero cross elasticity ($E_{xy} = 0$).
Key Formula or Approach:
\[ E_{xy} = \frac{\% \Delta Q_x}{\% \Delta P_y} = \begin{cases} > 0 \& \text{Substitute Goods (Paddy \& Wheat)} = 0 \& \text{Unrelated / Independent Goods (Butter \& Mango)} \end{cases} \]

Step 2: Detailed Explanation:
Evaluating Cross Elasticity of Demand ($E_{xy}$):
1. Butter and Mango (B): Completely unrelated and independent commodities with no functional or dietary substitutability or complementarity. A price shift in mangoes has zero effect on butter sales ($E_{xy = 0$}).
2. Paddy and Wheat: Substitute staple grains ($E_{xy} > 0$, positive).
3. Ink and Pen Bread and Butter: Complementary goods ($E_{xy} < 0$, negative).

Step 3: Final Answer:
Hence, Butter and Mango has zero cross elasticity of demand, corresponding to option (B).