Question

suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross- price elasticity between the two movie club memberships

Answer 1

Answer: The value of cross price elasticity is 1.6.

Explanation:

Since we have given that

Percent change in price = 10%

Percent change in quantity = 16%

So, we need to find the cross price elasticity between the two movie club memberships.

As we know the formula for cross price elasticity :

`\frac{\%\text{change in demand}}{\%\text{change in price}}\\\\=(16)/(10)\\\\=1.6`

Hence, the value of cross price elasticity is 1.6.