Matt purchases 4 boxes of spinach and 3 pounds of tomatoes per month when the price of spinach is $1.50 per box. He purchases 5

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Matt purchases 4 boxes of spinach and 3 pounds of tomatoes per month when the price of spinach is $1.50 per box. He purchases 5

boxes of spinach and5pounds of tomatoes per month when the price of spinach is $1.00 per pound. Using the midpoint method, Matt's cross-price elasticity of demand for spinach and tomatoes is__________.

Business

2 answers:

Lina20 [59] · Answer 1 · 2022-06-02T05:23:41+03:00

Answer: Cross-price elasticity of demand is -1.25, and spinach and tomatoes are complements.

Explanation: From the question above, we have:

Q1 for spinach= 4 boxes

Q1 for tomatoes = 3 pounds

Q2 for spinach= 5 boxes

Q2 for tomatoes= 5 pounds.

P1= $1.50

P2= $1

The midpoint formula is given as:

[(Q2 - Q1)/(Q2 + Q1/2)] ÷ [(P2 - P1)/(P2 + P1/2)]

Therefore, using the midpoint method the to compute the percent change in quantity of good tomatoes, we have:

(5-3) / [(5 + 3)/2] = 0.5.

To compute the percent change in price of spinach, we have:

(1.00-1.50) / [(1.00+1.50)/2] = -0.4.

Now, by dividing the percent change in quantity of tomatoes by the percent change in price of spinach we will get the cross-price elasticity of demand, thus:

=> 0.5/-0.4= -1.25.

From the answer, we can conclude that, when two goods have a negative cross-price elasticity, they are complements.