Question

if the cross price elasticity between goods b and a is -2 and the price of good b increases by 5 percent the quantity demanded of good a will

Answer 1

lead to a fall in quantity demanded by 10%

Step-by-step explanation:

The cross price elasticity of demand measures the effect of the percentage in price of one good on the quantity demanded of another good.

Cross price elasticity = percentage change in quantity demanded of good A / percentage change in price of good B

2 = percentage change in quantity demanded of good A / 5%

percentage change in quantity demanded of good A = 10%

Because demand is elastic, the quantity demanded would fall by 10%

Elastic demand means that quantity demanded is sensitive to price changes. A small change in price would lead to a greater change in quantity demanded