Question

The cross-price elasticity of demand measures the

absolute change in the quantity demanded of one good divided by the absolute change in the price of another good.

percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.

percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location.

percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

Answer 1

Option D.

• Cross price elasticity of demand measures the change in the demand of one good with respect to the change in the price of its related good.
• It is usually calculated as the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
• If the price and quantity demanded move in same direction like substitute goods, then cross price elasticity of demand is said to be positive.
• If the price and quantity demanded move in different directions like complementary goods, then cross price elasticity of demand is said to be negative.