Question

Microeconomics

Posted 2 months ago

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Suppose an economist wants to calculate how responsive the quantity demanded of good $X$ is in response to a change in the price of good $Y$.
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 $X$ and $\operatorname{good} Y ?$
Choose 1 answer:
(A) $\frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}$
(B) $\frac{\% \Delta Q_{X}}{\% \Delta P_{X}}$
(c) $\frac{\% \Delta Q_{X 1}}{\% \Delta Q_{Y 1}}$
(D) $\frac{\% \Delta Q_{Y}}{\% \Delta P_{X}}$
(E) $\% \Delta Q_{Y}$
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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 $X$ and good $Y$ is given by:
$\text{Cross-Price Elasticity} = \frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}$
This formula indicates how the quantity demanded of good $X$ changes in response to a change in the price of good $Y$

Answer

(A) $\frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}$

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 $\frac{\% \Delta Q_{X}}{\% \Delta P_{Y}}$, which shows the percentage change in the quantity demanded of good $X$ relative to the percentage change in the price of good $Y$.

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