Question

The price of peanut butter increased by 25 percent and the quantity of jelly demanded decreased by 50 percent. Using one decimal place and the negative sign if necessary, the cross-price elasticity between peanut butter and jelly is _____.

Answer 1

Price of peanut butter increased = 25%

Quantity demanded of jelly decreased = 50% or -50% (as the quantity demanded decreasing it should be written as -50%)

The peanut butter and jelly must be complementary commodities.

Cross Price Elasticity = % change in the quantity of jelly / % change in the price of peanut butter

Cross Price Elasticity = -50% / 25% = -2

As the two goods are complements, the cross elasticity is negative.