Suppose that the price of product A decreases from $30 to $18 and, as a result,

Question

Suppose that the price of product A decreases from $30 to $18 and, as a result, the quantity traded of A increases from 190 to 255, the quantity traded of B increases from 60 to 75 and the quantity traded of product C falls from 515 to 410.
Note: Where necessary round your answers to two decimal places.

a) What is the absolute value of the price elasticity of demand for product A at the beginning end-point (where price = $30) ?


b) What is the cross-price elasticity of demand for good B with respect to the price of good A relative to the beginning end-point?


c) Given the value of the calculated elasticity, these two goods are : (choose one)
normal
inferior
complements
substitutes



d) What is the cross-price elasticity of demand for good C with respect to the price of good A relative to the beginning end-point?


e) Given the value of the calculated elasticity, these two goods are :(choose one)
normal
inferior
complements
substitutes

Explanation / Answer

a) The price elasticity of demand = % change in Demand / % change in Price = 0.34 / 0.4 = 0.85 b) Cross price elasticity = % change in the demand / % change in price It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in the price of the second good. Cross price elasticity = 0.25 / 0.4 = 0.625 c) These two goods are complements d) Cross price elasticity = % change in demand / % change in price = -0.206 / 0.4 = -0.515 e) These two goods are substitutes

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.