Answer:
Option c = They are Substitutes and have cross price elasticity of 1.67
Explanation:
Cross-Price Elasticity = <u>%change in Quantity demanded of good X</u>
%change in Price of good Y
% change in Quantity Demanded of good X = <u>Q2-Q1 </u> × 100
(<u>Q1+Q2)</u>
2
% change in Quantity Demanded of good X =<u> 40-20 </u> ×100
<u>(20+40)</u>
2
% change in Quantity Demanded of good X = 66.67%
% change in price of good Y = <u>P2-P1</u> × 100
<u> ( P1+P2)</u>
2
Last month Total Revenue = $100
Total Units = 50
Last month Price / unit = 100/50 = $2
This Total Revenue $120
Total units 40
This monthPrice / unit = 120/40 = $3
% change in price of good Y=<u> 3 - 2 </u>× 100
<u>3+2</u>
2
% change in price of good Y =<u> 1 </u>× 100
2.5
% change in price of good Y = 40%
Cross-Price Elasticity =<u> 66.67</u>
40
Cross- Price Elasticity = 1.67
Since its greater than 1 its Cross price elasticity of Substitute
also as the price of good y increased from $2 to $3 the quantity demanded of good x increased although its price remained constant which indicates its a substitute good as people preferred buying good x instead of good y
