Question

suppose that the number of units of good a consumed falls 10 percent when the price of good b falls 5 percent. the cross price elasticity of demand between goods a and b is part 2 a. 2.0. b. 0.2. c. 5.0. d. 0.5.

Answer 1

The cross-price elasticity of demand between goods A and B is calculated as the percentage change in the quantity of good A demanded divided by the percentage change in the price of good B.

Using the given information, we have:

cross-price elasticity of demand = (% change in quantity of A demanded) / (% change in price of B)

We are given that the quantity of A demanded falls 10% when the price of B falls 5%. We can express these changes as:

% change in quantity of A demanded = -10%

% change in price of B = -5%

Plugging these values into the formula, we get:

cross-price elasticity of demand = (-10%) / (-5%) = 2

Therefore, the cross-price elasticity of demand between goods A and B is 2.0, which is option (a).