Answered: quantity demanded for product A…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter5: Price Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1SQP

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Question

The quantity demanded for product A increases 8% when the price of product B increases 16% and the other variables remain the same. Calculate the cross elasticity of demand. Products A and B, are they complementary or substitutes? Why? By drawing a graph, show the change in the demand curve for product A as a result of the change in the price of product B.

Expert Solution

Step 1

The ‘cross price elasticity’ of demand refers to the percentage(%) change in quantity(Q) demanded of a good in relation to the percentage(%) change in price(P) of the another good. It measures the responsiveness of the Q demanded of a good with the change in the P of the other good.

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