Question

When the price of pencils increases from $1.50 to $2.50, there is an increase in quantity demanded of pens from 100 to 150. the cross-price elasticity of demand between pencils and pens is:?

Answer 1

0.75

Step-by-step explanation:

The cross price elasticity measures how a change in price of one good affects the quantity demanded of another good

Cross price elasticity = percentage change in quantity demanded of pens / percentage change in the price of pencils

percentage change in quantity demanded of good A = (150 -100) / 100 = 0.5 = 50%

percentage change in the price of good B = (2.50 - 1.50) / 1.50 = 0.67 = 67 %

Cross price elasticity = 50% / 67% = 0.75

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