Question

When the price of a

skateboard

increases by

4

​percent, the quantity of

elbow pads

demanded decreases by

1

percent.

Calculate the cross elasticity of demand for

elbow pads

with respect to the price of a

skateboard.

Answer 1

Cross elasticity of demand measure the degree of responsiveness of quantity demanded of one related good to a change in the price of another related good.
Cross elasticity = %change in quantity demanded of one related good / %change in the price of another related good.

In the question,

% Increase in the price of skateboard is 4% and

% Decrease in the quantity demanded elbow pads is 1%

Cross Elasticity = -1% / 4%

Cross Elasticity = -0.25

As the cross elasticity is negative, the goods are complementary.