9. Substitutes, complements or unrelated? Data collected in the imaginary econom

Question

9. Substitutes, complements or unrelated?

Data collected in the imaginary economy of Perturbia reveals that when the price of a bork decreased by 25%, the quantity of bork sold increased by 20%, and the quantity of vort demanded increase by 15%

What is the cross-price elasticity of demand between vort and bork?
a. 0.6
b. -0.6
c. 1.67
d. -0.75

Which of the following can you conclude based on this information? Select all that apply.

Bork and vort are substitutes
The demand for vort is price inelastic in this price range
Bork and vort are unrelated
The demand for bork is price inelastic in this price range

Explanation / Answer

To find out the elasticity we use the formula (% change in demand of good A)/(% change in price of good B)

we use the formula the auantity increace of vort/ price decrease of book

this is .15-.25

This is equal to -.6

So your answer is B

Now we know they are not substitutes. The demand for vort is inelastic in the price range. Book and vort are unrelated and the demand for the book is not inelastic in the price range.

So for your second answer the only one that applys is The demand for vort is price inelastic in this price range.

Hope this helps

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