Question

Cross Price Elasticity simply measures the percentage change in quantity demanded of one good divided by the percentage change in price of another good. For example, the enrollment of college students at California state-funded community colleges would probably fall slightly if the popular
California UC and CSU universities (e.g. UC Berkeley) lowered their prices by 50 percent.

True or False?

Answer 1

Ans: True

Explanation:

Cross price elasticity of demand = % change in the quantity demanded of good X / % change in the price of good Y

Cross price elasticity of demand shows the relationship between the related goods.

When the cross price elasticity of demand is positive ( +ve) , then then two goods are substitutes. In the above case, the enrollment of college students at California state-funded community colleges falls slightly when the popular
California UC and CSU universities (e.g. UC Berkeley) lowered their prices by 50 percent. It means both the variables ( enrollment and prices ) move in the same direction. It means , the cross price elasticity of demand is positive. So this is an example of cross price elasticity of demand.