If when the price of product e decreases by 2%, this causes its quantity demanded to increase by 14% and the quantity demanded for product f to increase by 17%, what is the cross-price elasticity of demand?

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12-02-2018
Business

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If when the price of product e decreases by 2%, this causes its quantity demanded to increase by 14% and the quantity demanded for product f to increase by 17%, what is the cross-price elasticity of demand?

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jamuuj jamuuj · Answer 1 · 2018-02-22T15:14:30+01:00

Cross elasticity of demand measures the responsiveness in the quantity demand of one good when a change in price takes place in another commodity or good. It is calculated by dividing the percentage change in the quantity demanded of one good by the percentage change in price of other good.
Therefore, in this case, cross elasticity of demand will be;
17%/-2% = - 8.5 (-2% because its a decrease)
Thus , the elasticity will be -8.5