Question

The cross-price elasticity of coffee and tea is 0.6, where the percentage change in quantity is for coffee and the percentage change in price is measured for tea. If the price of tea increases by 6.0%, what will the percentage change in the quantity demanded of coffee (%AQ) be? Enter the response to one decimal place and enter a negative number if the quantity demanded decreases. %AQP for coffee: The cross-price elasticity of bows and violins is -0.3, where the percentage change in quantity is for bows and the percentage change in price is measured for violins. Calculate the percentage that the quantity demanded of bows will change if the price of violins decreases by 14%. Enter the response to one decimal place and enter a negative number if the quantity demanded decreases. %AQP for bows: %

Answer 1

(1) Cross price elasticity of demand for tea and coffee = (% change in quantity for coffee / % change in price of tea)

=> 0.6 = (% change in quantity of coffee / 6)

=> % change in quantity of coffee = 0.6 * 6

=> % change in quantity of coffee = 3.6

The % change in quantity of coffee is 3.6%

Answer: 3.6%

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(2) Cross price elasticity of demand for bows and violins = (% change in quantity for bows / % change in price of violins)

=> -0.3 = (% change in quantity of bows / -14)

=> % change in quantity of bows = (-0.3) (-14)

=> % change in quantity of bows = 4.2

The % change in quantity of bows is 4.2%

Answer: 4.2%

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