Question

For each scenario, calculate the cross-price elasticity between the two goods and identify how the goods are related. Please use the midpoint method when applicable, and specify answers to one decimal place. A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B. cross-price elasticity between A and B: relationship between A and B: no relationship Product Cincreases in price from $1 a pound to $2 a pound. This causes the quantity demanded for Product D to increase from 27 units to 81 units. relationship between C and D. cross-price elasticity between C and D: 1.5 substitutes When the price of Product E decreases 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 12%. relationship between E and F: cross-price elasticity between E and F: -8.5

Having a hard time on the last question

Answer 1

Ans. Product E and Product F

Cross price elasticity between E and F = % change in quantity demand for Product F/ % change in the price of product E

= 12 % / ( - 9 %)

= - 1.3 [ For one decimal place ]

Since cross-price elasticity between product E and F is - 1.3 that shows the there is a negative relationship between the price of product E and quantity demand for product F. Therefore, product E and product F are complementary goods because complementary goods have a negative relationship between the price of one good and quantity demand for another good.

Note:

1) % decrease in price of product E = - 9%

2) % increase in quantity demand for product F =12%

3) to calculate its own- price elasticity of demand for product E, we will take a % increase in quantity demand for product E which is 14%.