Question

Suppose a 5.2% increase in the price of paper towels causes an 8% decrease in the quantity demanded of paper towels and a 6.8% increase in the quantity demanded of wet wipes. What is the cross-price elasticity of the demand for wet wipes with paper towels?

Group of answer choices

−1.538

−0.765

1.308

12

Answer 1

When due to % change in the price of one goods leads to change in the % change in the quantity demand, it is known as the cross price elasticity demand.

Cross-price elasticity of demand= % change in the quantity demand one good/ % change in the price of its related good

When the cross-price elasticity demand sign is positive, then both goods will be substitute goods.

When the cross-price elasticity demand sign is negative, then both goods will be complementary goods.

Since the given information is that a 5.2% increase in the price of paper towels causes an 8% decrease in the quantity demanded of paper towels and a 6.8% increase in the quantity demanded of wet wipes.

Cross price elasticity of demand for wet pipes with paper towels

=6.8%/5.2%

=1.30769

=1.308

Hence option third is the correct answer.