Question

Suppose the cross-price elasticity of demand between goods Xand Yis 4. How much would the price of good Yhave to change in order to change the consumption of good Xby 20 percent?

If you are entering a negative number, be sure to use a negative sign (-).

______percent

Answer 1

Cross elasticity of demand = % change in the quantity of good x / % change in the price of good Y.

Here the Cross elasticity is 4, let the change in the demand by 20% and the price of good Y be (X).

we get 4 = 20 / (x)

4(X) = 20

(X) = 5

The price of good Y needs to decrease by 5% to increase the demand for good X by 20%.