Asked by Autumn Gilbert on Jul 05, 2024
Verified
Suppose the cross-price elasticity between two goods is 1.5.If the price of one good increases by 10%,then the quantity demanded of the other good will:
A) decrease by 15%.
B) increase by 15%.
C) decrease by 1.5%.
D) increase by 1.5%.
Cross-Price Elasticity
A measure of how the quantity demanded of one good responds to a change in the price of another good, indicating whether the goods are substitutes or complements.
Quantity Demanded
The complete quantity of a product or service that purchasers are ready and financially able to buy at a specific price during a designated time frame.
- Comprehend the concept of cross-price elasticity of demand and its significance for identifying goods as either substitutes or complements.
Verified Answer
TB
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Final Answer :
B
Explanation :
A cross-price elasticity of 1.5 means that a 1% increase in the price of one good leads to a 1.5% increase in the quantity demanded of the other good. Therefore, a 10% increase in the price of one good would lead to a 15% increase in the quantity demanded of the other good.
Learning Objectives
- Comprehend the concept of cross-price elasticity of demand and its significance for identifying goods as either substitutes or complements.