Question

Suppose the cross-price elasticity of demand between goods X and Y is -5. How much would the price of good Y have to change in order to change the consumption of good X by 50 percent?

Instruction: If you are entering a negative number, be sure to use a negative sign (-).

_________percent

Answer 1

Cross-price elasticity of demand= % change in the quantity demand/ % change in the price

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

Cross-price elasticity of demand= % change in the quantity demand/ % change in the price.

Since the given cross-price elasticity of demand between goods X and Y is -5.

% change in the consumption of good X = +50 percent

Cross-price elasticity of demand= % change in the quantity demand/ % change in the price.

-5= 50%/ % change in the price.

% change in the price=50%/(-5%)

=(-)10%

It means price should change by=(-)10%