Final answer:
The correct answer is D, which states that the cross-price elasticity of demand for beer is 2, indicating that beer's demand is elastic when the price of lemonade increases.
Step-by-step explanation:
The student's question involves calculating the cross-price elasticity of demand, which measures the responsiveness of demand for one good in relation to a price change of another good. In this scenario, a 10 percent increase in the price of lemonade caused a 20 percent increase in the sales of beer. The formula for cross-price elasticity is the percentage change in quantity demanded of one good divided by the percentage change in price of another good.
Using this formula, we calculate the cross-price elasticity of demand for beer as follows: (20% / 10%) = 2. This means that the correct answer is D: cross-price elasticity of demand for beer is 2. This result indicates that beer and lemonade are substitute goods, and the demand for beer is elastic with respect to the price of lemonade because the elasticity is greater than 1.