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The cross-price elasticity between two products is estimated to be 2. If the price of the...

The cross-price elasticity between two products is estimated to be 2. If the price of the first product is increased by 9.9%, demand for the second product will increase by_____%.

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Answer #1

Cross price elasticity measures the responsiveness of quantity demanded of a good for change in price of another good

Negitive elasticity denotes complemement products and positive denotes substitute products

Here elasticity is positive which denotes they are substitutes

So for price increase of one product demand of other product increases

2= x/9.9

So x = 19.8%

As it is percentage change in demand of first good in response to percentage change of price of second good

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