Question

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units.
Using the midpoint method, the cross-price elasticity of demand is ________.

Answer 1

Answer:

the cross-price elasticity of demand is -1.0, and X and Y are complements

Explanation:

given data

price of good X falls = $10 to $8

quantity demanded of good Y rises = 20 units to 25 units

solution

we know that Cross Elasticity = [ (q2-q1) ÷ ( (q2+q1) ÷2) ] ÷ [ (p2-p1) ÷ ( (p2+p1) ÷ 2 ) ]     ........................1

here q1 is = 20 and p1 is 10 and q2 is 25 and p2 is 8

so put here value we get

Cross Elasticity  = $\frac{\frac{25-20}{(2+20)/2} }{\frac{8-10}{(8+10)/2} }$    

Cross Elasticity  =  -1  

so here Elasticity is negative

answer is  the cross-price elasticity of demand is -1.0, and X and Y are complements