According to a Honda press release, sales of the fuel-efficient four-cylinder Honda Civic rose by 7.1% from 2016 to 2017. Over the same period, according to data from the U.S. Energy Information Administration, the average price of regular gasoline rose from $2.27 per gallon to $2.57 per gallon.
Using the midpoint method, define and calculate the cross-price elasticity of demand between Honda Civics and regular gasoline.
According to your estimate of the cross-price elasticity, are the two goods gross complements or gross substitutes? Does your answer make sense?
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