Question

1. When the price of Good 1 changed from $80 per unit to $40 per unit,...

1. When the price of Good 1 changed from $80 per unit to $40 per unit, demand for Good 2 changed from 6000 units to 10,000 units. Calculate the appropriate elasticity. You will interpret your findings in the next question.Enter only numbers, a decimal point, and/or a negative sign as needed. Round your answer to two decimal places as necessary; if you round on intermediate steps, use four places.

2.

You must select all correct answers to get points for this question if more than one applies:

Goods 1 and 2 just described are:

Group of answer choices

unit elastic goods

elastic goods

complements

substitutes

inferior goods

normal goods

inelastic goods

Homework Answers

Answer #1

(1) Price of good 1 changed from $80 to $40 as a result the demand for good 2 changed from 6000 units to 10,000 units

=> % change in price of good 1 = [(40-80) /80]*100 = -50

=>% change in demand for good 2 = [(10,000 - 6,000)/6000]*100 = 66.6666

Cross price elasticity of demand for good 2 w.r.t price of good 1 = (% change in demand for good 2/ % change in price of good 1)

=> Cross price elasticity of demand for good 2 w.r.t price of good 1 = (66.6666 / -50)

=> Cross price elasticity of demand for good 2 w.r.t price of good 1 =-1.33

Answer: Cross price elasticity of demand for good 2 w.r.t price of good 1 is -1.33

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(2)

Cross price elasticity of demand for good 2 w.r.t price of good 1 is negative, it implies that good 2 and good 1 are complements goods.

Answer: Complements goods.

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