Question

For each scenario, calculate the cross-price elasticity between the two goods and identify how the goods are related. Please use the midpoint method when applicable, and specify answers to one decimal place.

a. A 20 % price increase for Product A causes a 10 % decrease in its quantity demanded, but no change in the quantity demanded for Product B.
b. Product C increases in price from $1 a pound to $2 a pound. This causes the quantity demanded for product D to increase from 27 units to 81 units.
c. When the price of Product E decreases 2%, this causes its quantity demanded to increase by 4% and the quantity demanded for Product F to increase 17%.

Answer 1

Answer:no relationship,substitutes and complements

Step-by-step explanation:

A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B.

The answer is : Cross-Price Elasticity=0, Relationship=no relationship

Product C increases in price from $1 a pound to $2 a pound. This causes the quantity demanded for product D to increase from 27 units to 81 units.

Answer: Cross price elasticity 81/54=1.5, relationship=substitutes

When the price of Product E decreases 2%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 17%.

Answer: Cross-Price elasticity which is = -8.5, relationship= complements