Question

If Good C increases in price by 30 % a pound, and this causes the quantity demanded for Good D to increase by 40% , 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? Complements no relationship substitutes

Answer 1

1.3

Substitutes

Explanation:

Cross price elasticity,Edc = percentage change in Quantity demanded of D / percentage change in Price of C

Good C increases in price by 30 % a pound

Good D to increase by 40%

Cross price elasticity, Exy = percentage change in Quantity demanded of D / percentage change in Price of C

= 40% / 30%

= 1.333

To one decimal place = 1.3

When Edc > 0, Quanrity demand of good D and Price of good C

are directly related. D and C are substitutes

The goods are substitute