Question

You must select all correct answers (if more than one are true) to get points for this question:Goods 1 and 2 just described are:

Group of answer choices

elastic goods

inferior goods

substitutes

normal goods

inelastic goods

unit elastic goods

complements

When the price of Good 1 changed from $6 per unit to $7 per unit, demand for Good 2 changed from 5000 units to 4000 units. Calculate the appropriate elasticity. You will interpret your findings in the next question.Enter only numbers, a decimal point, and/or a negative sign as needed. Round your answer to two decimal places as necessary; if you round on intermediate steps, use four places.

Answer 1

Answer- Cross-price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in the price of the other good. When the price of Good 1 changed from $6 per unit to $7 per unit, demand for Good 2 changed from 5000 units to 4000 units.

P₀ = 6          P₁ = 7         Change in Price = 1

Q₀ =5000 Q₁ = 4000     Change in Quantity = 1000

Cross Elasticity of demand = (Change in Quantity / Q₀) / (Change in Price / P₀)

                                         = (1000 / 5000) / (1 / 6)

                                         = 0.2 / 0.16

                                         = 1.25

Cross Elasticity of demand is 1.25, it means the demand is elastic. Complementary goods have a negative cross price elasticity, as the price of one good increases the demand for second good decreases