Question

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

Answer 1

Answer:

-2

Explanation:

Good X and Y are related goods

When the price of Good X rises by 20 percent the quantity for Good Y falls by 40 percent

Therefore the cross price elasticity can be calculated as follows

= -40/20

= -2

Hence the cross price elasticity is -2