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Question
Microeconomics
Posted 2 months ago

Suppose an economist wants to calculate how responsive the quantity demanded of good XX is in response to a change in the price of good YY.

Which of the formulas below would be a correct formula to use if we wanted to calculate the cross-price elasticity of demand for good XX and goodY?\operatorname{good} Y ?

Choose 1 answer:
(A) %ΔQX%ΔPY\frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}
(B) %ΔQX%ΔPX\frac{\% \Delta Q_{X}}{\% \Delta P_{X}}
(c) %ΔQX1%ΔQY1\frac{\% \Delta Q_{X 1}}{\% \Delta Q_{Y 1}}
(D) %ΔQY%ΔPX\frac{\% \Delta Q_{Y}}{\% \Delta P_{X}}
(E) %ΔQY\% \Delta Q_{Y}
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Answer from Sia
Posted 2 months ago
Solution
a
Definition of Cross-Price Elasticity: Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good
b
Correct Formula: The correct formula to calculate the cross-price elasticity of demand for good XX and good YY is given by: Cross-Price Elasticity=%ΔQX%ΔPY \text{Cross-Price Elasticity} = \frac{\% \Delta Q_{X}}{\% \Delta P_{Y}} This formula indicates how the quantity demanded of good XX changes in response to a change in the price of good YY
Answer
(A) %ΔQX%ΔPY\frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}
Key Concept
Cross-Price Elasticity of Demand
Explanation
The cross-price elasticity of demand is used to measure the responsiveness of the quantity demanded of one good when the price of another good changes. The correct formula is %ΔQX%ΔPY\frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}, which shows the percentage change in the quantity demanded of good XX relative to the percentage change in the price of good YY.

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