Question

3. Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that the: O cross-price elasticity between cereal and milk is -2. O cross-price elasticity of demand between cereal and milk is 2. O price elasticity of demand for milk is 2. O cross-price elasticity between cereal and milk is -0.5.

Answer 1

The cross-price elasticity between cereal and milk is -2.

Step-by-step explanation:

The price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that milk and cereal are complements which means that they are consumed together.

The cross-price elasticity of demand shows the change in quantity demanded of a good because of a change in the price of a related good.

Cross price elasticity

=
`(\% \Delta Q)/(\% \Delta P)`

=
`(-50)/(25)`

= -2