Question

5 percent increase in the price of good C leads to a 20 percent decrease in the quantity demanded of good D. Instructions: Round your answer to two decimal places. If you are entering a negative number be sure to include a negative sign (-) in front of that number. The cross-price elasticity of these goods is: . These goods are substitutes .

Answer 1

Answer:

• Cross-price elasticity = -4
• Goods are compliments.

Explanation:

The cross-price elasticity of two goods refers to how the change in price of one affects the change in price of another. It also shows which goods are compliment or substitutes.

Complimentary goods have a negative cross-price elasticity and substitutes have a positive one.

Cross price elasticity = % change Quantity demanded of X / % change in Price of Y

= -20% / 5%

= -4

These goods are compliments as the cross-price elasticity is a negative.