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What the answer for cross-price elasticity between C and D
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Answer from Sia

Posted 19 days ago

Solution

a

Identify the Price Change: The price of Product C increases from $5 to$11, which is a change of $6. The percentage change in price is calculated as:$$\text{Percentage Change in Price} = \frac{(11 - 5)}{(11 + 5)/2} \times 100 = \frac{6}{8} \times 100 = 75\%$$

b

Identify the Quantity Change: The quantity demanded for Product D increases from 10 units to 18 units, which is a change of 8 units. The percentage change in quantity demanded is calculated as:
$\text{Percentage Change in Quantity} = \frac{(18 - 10)}{(18 + 10)/2} \times 100 = \frac{8}{14} \times 100 \approx 57.1\%$

c

Calculate Cross-Price Elasticity: The cross-price elasticity of demand is calculated using the formula:
$E_{C,D} = \frac{\text{Percentage Change in Quantity Demanded of D}}{\text{Percentage Change in Price of C}} = \frac{57.1\%}{75\%} \approx 0.7613$
Rounding to one decimal place gives us approximately 0.8

Answer

The cross-price elasticity between Products C and D is approximately 0.8

Key Concept

Cross-price elasticity measures how the quantity demanded of one good responds to a change in the price of another good.

Explanation

A positive cross-price elasticity indicates that the two goods are substitutes, meaning that as the price of Product C increases, the quantity demanded for Product D also increases.

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