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If a 12% increase in the price of grapefruit juice causes a 22% decrease in the...

If a 12% increase in the price of grapefruit juice causes a 22% decrease in the quantity of grapefruit juice demanded. On the other hand, there is a 14% increase in the amount of demand for Ron Don Q; Calculate: a) the price elasticity of demand for grapefruit juice and rum. b) Calculate the cross elasticity of demand between grapefruit juice and Don Q Rum.

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Answer #1

So from the above question following things are given

% Change in Price (grapefruit juice) = +12%

% Change in Quantity Demanded (grapefruit juice) = -22%

% Change in Quantity Demanded (Ron Don) = +14%

A) Price elasticity of demand for grapefruit juice

Price elasticity of demand = % Change in Quantity Demanded / % Change in Price

Price elasticity of demand = -22 / 12

Price elasticity of demand = -1.83

B) Cross elasticity of demand for grapefruit juice and Ron Don

Cross elasticity of demand = % Change in Quantity Demanded (Ron Don) / % Change in Price (grapefruit juice)

Cross elasticity of demand = 14 / 12

Cross elasticity of demand = 1.16

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