Question

When the price of erasers increases from $1.50 to $2.50, the quantity demanded of pencils is unchanged. The cross-price elasticity of demand between erasers and pencils is ________ because erasers and pencils are ________.a. 1; substitutesb. 1/2; complementsc. 0; normal goodsd. 0; unrelatede. −1/2; complements

Answer 1

Answer:

d. 0; unrelated.

Explanation:

Cross elasticity of demand is the degree of responsiveness of demand for a particular product to a change in the price of another product.

A change in price of a product will lead to a change in demand for another product if the two goods are either goods of close substitutes or if they are complements. If two goods are not related, the change in price of one will not have any impact on the demand for the other good.

In this question, the cross elasticity is zero because biro and pencil are not related.