Question

the cross-price elasticity between goods alpha and beta is 10 and the price of alpha goes up by 5 percent. which of the following must be true? they are substitutes and the price of beta goes up by 50 percent. they are complements and the price of beta goes down by 2 percent. they are substitutes and the quantity demanded of beta goes up by 50 percent. they are complements and the quantity demanded of beta goes down by 50 percent. they are complements and the demand for beta goes up by 2 percent.

Answer 1

If the cross-price elasticity between goods alpha and beta is 10 and the price of alpha goes up by 5 percent, the correct statement is that they are substitutes and the quantity demanded of beta goes up by 50 percent.

Step-by-step explanation:

The cross-price elasticity of demand is a measure used in economics to show how the quantity demanded of one good is affected by a change in price of another good. When two goods are substitute goods, they have a positive cross-price elasticity of demand, meaning that an increase in the price of one good causes an increase in the quantity demanded of the other. Consequently, if the cross-price elasticity between goods alpha and beta is 10, and the price of alpha goes up by 5 percent, we would expect the quantity demanded of good beta to go up. This is because they are substitutes, and the 5 percent price increase in alpha would result in a (10 * 5) = 50 percent increase in the quantity demanded of beta. Therefore, the correct statement is: they are substitutes and the quantity demanded of beta goes up by 50 percent.