Question

Research has found that an increase in the price of beer would reduce the amount of marijuana consumed. Is cross elasticity of demand between the two products positive or negative? Are these products substitutes or complements? What might be the logic behind this relationship?

Answer 1

Cross elasticity of demand between the two products is negative.

These products are complements.

Logical explanation:

People consume beer and marijuana together, so increase in beer's price lead to decrease in its consumption, as beer and marijuana are consumed together - marijuana consumption decreases as well.