Multiple Choice
What is cross-price elasticity of demand?
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4. Elasticity
Cross-Price Elasticity of Demand
Multiple Choice
An increase in the demand for chicken, from 8,000 to 12,000, was caused by an increase in the price of beef from \$4.50 to \$5.50. Therefore, the cross-price elasticity for these two products is:
A
0.5
B
-2.0
C
2.0
D
-0.5
Verified step by step guidance1
Understand the concept of cross-price elasticity of demand, which measures the responsiveness of the quantity demanded of one good to a change in the price of another good.
Use the formula for cross-price elasticity of demand: \( E_{xy} = \frac{\% \text{ change in quantity demanded of good } x}{\% \text{ change in price of good } y} \).
Calculate the percentage change in the quantity demanded of chicken: \( \frac{12,000 - 8,000}{8,000} \times 100\% \).
Calculate the percentage change in the price of beef: \( \frac{5.50 - 4.50}{4.50} \times 100\% \).
Substitute the percentage changes into the cross-price elasticity formula to find the elasticity value.
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