Question

If the cross-price elasticity for oranges with respect to apples is 1.2 and the price of apples increase by 5%, then we can expect the quantity demanded of oranges to decrease by 6%. True or false

Answer 1

The statement is false; with a cross-price elasticity of 1.2, a 5% increase in the price of apples would result in a 6% increase in the quantity demanded of oranges.

Step-by-step explanation:

The statement given in the question is false. The cross-price elasticity of demand measures the responsiveness of the quantity demanded for one good when the price of another good changes. If the cross-price elasticity for oranges with respect to apples is 1.2, this indicates that oranges and apples are substitute goods, and an increase in the price of apples by 5% should lead to an increase in the quantity demanded for oranges by 6% (1.2 multiplied by 5%). Therefore, the quantity demanded of oranges is expected to increase, not decrease.