Answer with Explanation Please The cross price elasticity of demand for movies g

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Answer with Explanation Please

The cross price elasticity of demand for movies given a change in the price of television is 3.2. If the price elasticity of demand for television is -1.8, then: television is a gross complement of movies, and he spends on movies four times what he spends on television. television is a gross substitute of movies, and he spends on movies four times what he spends on television. television is a gross complement of movies, and he spends on movies one-fourth what he spends on television. television is a gross substitute of movies, and he spends on movies one-fourth what he spends on television.

Explanation / Answer

Option (b).

A positive cross-elasticity indicates substitute goods.

Cross price elasticity = % Change in quantity of movies / % Change in price of TV = 3.2 ....(1)

Absolute value of Price elasticity for TV = % Change in quantity of TV / % Change in price of TV = 1.8 ....(2)

Dividing (1) by (2),

% Change in quantity of movies / % Change in quantity of TV = 3.2 / 1.8 = 1.78

Therefore, amount spent on movies is higher than that spent on TV.

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