Question

Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is

Answer 1

Answer: This implies that the cross elasticity of demand between orange juice and apple juice is 0.5.

Explanation:

The cross elasticity of demand is evaluated as:

$\frac{\text{Percentage change in quantity of demand of Good X}}{\text{Percentage change in price of Good Y}}$

Price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed.

The cross elasticity of demand $=\frac{10}{20}$

The cross elasticity of demand = 0.5

Hence, This implies that the cross elasticity of demand between orange juice and apple juice is 0.5.