Question

7. The Efficient Software Store had been selling a spreadsheet program at a rate of 100 per month and a graphics program at the rate of 50 per month. In September 2012, Efficient's supplier lowered the price for the spreadsheet program, and Efficient passed on the- savings to customers by lowering its retail price from $400 to $350. The store manager noticed that the sales of the spreadsheet program has risen to 120, but also the sales of the graphics program increased to 56 per month. Explain what has happened. Use both arc price elasticity and arc cross-elasticity measures in your answer.

Answer 1

As we know that, spreadsheet and graphic program are interdependent to each other.
If we consider it in economics term, we can say that they are complementary goods.
In Complementary goods, when price of one good increases then quantity of another good decreases and vice versa.
So, when retailer decreases price of spreadsheet program, quantity of graphic program increases.
Technically, it shows negative Cross elasticity of demand.
Arc price elasticity of demand and arc cross elasticity is given on page 1 & page 2.