Question

If a 25 percent decrease in the price of sapphires causes a 15 percent decrease in the quantity of diamonds demanded, then the cross-price elasticity of demand between sapphires and diamonds is:

Answer 1

To solve for the cross-price elasticity of demand:
Take the quantity of the diamonds demanded and divide it by the decrease in the price of sapphires.
Cross-price elasticity of demand = 15/25
Cross-price elasticity of demand = 0.6

When you are solving for the cross-price elasticity of demand, you are seeing the response to the demand of a item when price changes for another good.