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stich3 [128]
3 years ago
13

If Starbucks raises its price by 5 percent and McDonald’s experiences a 0.5 percent increase in demand for its coffee, what is t

he cross-price elasticity of demand?
Instructions: Round your response to two decimal places. If you are entering a negative number be sure to include a negative sign (-) in front of that number.
Business
1 answer:
Gnesinka [82]3 years ago
6 0

Answer:

<em>Cross-price elasticity of demand = 0.1</em>

Explanation:

We have the formula to calculate the cross-price elasticity of demand as below:

<em>Cross-price elasticity of demand = % change in quantity demanded for product X/ % change in price of product Y</em>

<em />

Starbucks raises its price by 5 percent, so that <em>percentage changes in price of Starbucks' products</em> are 5

McDonald's experiences a 0.5 percent increase in demand for its coffee, so that <em>percentage changes in quantity demanded for McDonald's coffee </em>is 0.5

=> <em>Cross-price elasticity of demand = % changes in quantity demanded for McDonald's coffee/ %changes in price of Starbucks' products</em>

<em>= 0.5/5=  0.1</em>

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