Question

If Good C increases in price by 30% a pound, and this causes the quantity demanded for Good D to increase by 40%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place.

Answer 1

Answer:

1.3

Explanation:

Given:

If Good C increases in price by 30% a pound.

This causes the quantity demanded for Good D to increase by 40%.

Question asked:

What is the cross-price elasticity of the two goods ?

Solution:

We can find the cross-price elasticity of the two goods by this formula:

$E_{c} = \frac{ Percent\ change\ in \a \ quantity \ of \ good \ D}{Percent \ change\ in\ the\ price\ of \ good\ C}$

$E_{c} = \frac{40}{30}= 1.3$

When Good C increases in price by 30% which causes the quantity demanded for Good D to increase by 40%, then the cross-price elasticity of the  is Good C and  Good D is 1.3.