Question

If the cross-price elasticity between Good A and Good B is −1.5 and the percentage change in quantity demanded of Good B is 15 percent, what is the percentage change in the price of Good A? a. −10 percent b. − 0.10 percent c. −11.50 percent d. −1 percent e. 11.50 percent

Answer 1

Answer:

Option (a) is correct.

Explanation:

Given that,

Cross-price elasticity between Good A and Good B = −1.5

Percentage change in quantity demanded of Good B = 15 percent

Cross-price elasticity = Percentage change in quantity demanded of Good B ÷ Percentage change in the price of Good A

-1.5 = 15 ÷ Percentage change in the price of Good A

Percentage change in the price of Good A = 15 ÷ (-1.5)

                                                                        = -10 percent