Question

If a 30% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? Round your answer to one decimal place. What is the relationship between these goods? a. substitutes b. complements c.no relationship

Answer 1

Answer:

The correct answer is: Zero, Option c.

Explanation:

The price elasticity of demand shows the change in the quantity demanded of a commodity due to a change in the price of the commodity.  

The cross-price elasticity is the change in the quantity demanded of a product because of a change in the price of related good.  

The cross-price elasticity is calculated by finding the ratio of proportionate change in quantity demanded and proportionate change in price.  

Cross-price elasticity in this situation will be

= $\frac{\% \Delta Qy}{\% \Delta Px}$

= $\frac{0}{30}$

= 0

The cross-price elasticity is zero. This implies that the two goods have no relation.