Question

When the price of flowers increased from $5.00 to $5.70, the quantity demanded of chocolate increased from 5,550 to 6,150. What is the estimated cross-price elasticity of demand for chocolate? Round your answer to the nearest hundredth.

Answer 1

Answer:cross-price elasticity of demand= 1.57

Explanation:

The Cross Price Elasticity of Demand measures the degree at which the quantity demanded for one commodity changes with a change in price of another product. If the two products in comparison show a positive cross elasticity of demand, then both products are substitutes of each other , while a negative results shows both are complementary of each other.

Cross Price Elasticity of Demand= ΔQx/Qx /ΔPy/Py

Cross Price Elasticity of Demand = (Q1x – Q0x) / (Q1x+ Q0x) ÷ (P1y – P0y) / (P1y + P0y),

Q0X = Initial demanded quantity of commodity X =5500

Q1X = Final demanded quantity of commodity  X, = 6150

P0Y = Initial price of commodity Y = $5.00

P1Y = Final price of commodity Y= $5.70

Cross Price Elasticity of Demand = (Q1x – Q0x) / (Q1x+ Q0x) ÷ (P1y – P0y) / (P1y + P0y)

= (6150 -5000)/ (6150+5000)/(5.70-5.00)/(5.70 +5.00)

(1,150/11,150)/(0.7/10.7)=0.103139/0.065420= 1.5765  to the nearest hundreths = 1.57

A positive value 0f 1.57  for cross elasticity of demand shows that there is  a  competitive relationship between chocolate  and flowers.