Suppose that the price of Good X has increased by 3 percent. Shortly afterward, you observe...
Suppose that the price of Good X has increased by 3 percent. Shortly afterward, you observe a decrease in the quantity purchased of Good Y by a magnitude of 2 percent. Accordingly, what is the cross-price elasticity of demand? Are Goods X and Y substitutes or complements with one another? How can you tell?
Homework Answers
Cross price elasticity of the goods = % change in the quantity of Y / % change in the quantity of X.
= -2 / 3
= -0.66.
As the value of the cross price elasticity is -0.66 these two goods are complementary for the goods to be substitute the cross price elasticity will be a positive number.
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Suppose that the price of Good X has increased by 3 percent.
Shortly afterward, you observe...
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