Question

If Good C increases in price by 50 50 % a pound, and this causes the quantity demanded for Good D to increase by 60 % 60% , what is the cross-price elasticity of the two goods? Round your answer to one decimal place. What is the relationship between the two goods? no relationship substitutes complements

Answer 1

Cross price elasticity = percent change in the quantity demanded of good D / percent change in the price of good C = 60% / 50% = 1.2

When the cross price elasticity between two groups is higher than 1, the goods are substitute of each other. This means that an increase in the price of good C will increase the quantity demanded of good D.

Answer 2

1.2 substitutes is the relationship between the two goods.

Step-by-step explanation: