The cross-price elasticity of coffee and tea is 0.63, where the pecentage change

Question

The cross-price elasticity of coffee and tea is 0.63, where the pecentage change in quantity is for coffee and the percentage change in price is measured for tea. Calculate the percentage that the quantity demanded of coffee will change if the price of tea increases by 3.0%. Enter your response to one decimal place, and enter a negative number if the quantity demanded decreases. Number Tools The cro x 102 and the prmyhange in price is measured for violins. Calculate the percentage that the quantit demanded of bows will change if the price of violins decreases by 13%. Enter your response to one decimal place, and enter a negative number if the quantity demanded decreases. city of bows and violins is-0.36, where the percentage change in quantity is for bows Number

Explanation / Answer

Cross price elasticity is calculated by dividing the % change in quantity demanded of good A by the % change in price of good B.

A cross-price elasticity of 0.63 implies that a 1% increase in the price of tea would increase the quantity of coffee demanded by 0.63%. Therefore, a 3% increase in the price of tea would increase the quantity of Coffee demanded by 3 × 0.63% = 1.89%.

d. A cross-price elasticity of 0.36 implies that a 1% fall in the price of violins would increase the quantity of bows demanded by 0.36%. Therefore, a 13% fall in the price of violins would increase the quantity of bows demanded by 13 × 0.36% = 4.68%

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