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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 6, Problem 8TY
Textbook Problem
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For each of the product pairs given in Test Yourself Question 7, what would you guess about the products’ cross elasticity of demand?

  1. Do you expect it to be positive or negative?
  2. Do you expect it to be a large or small number? Why?

To determine

(a)

To find the weather the cross elasticity of demand is negative or positive.

Explanation of Solution

Cross-price elasticity refers to the degree of responsiveness of a change in the quantity demanded of good A for a given change in the price level of good B.

Substitutes goods have positive cross-price elasticity as percentage increase in price of good A leads to percentage increase in quantity demanded of good B.

Complementary goods have negative cross-price elasticity as percentage increase in price of good A leads to percentage decrease in quantity demanded of good B.

  1. Shoes and sneakers:
  2. Shoes and sneakers are substitute goods and substitute goods has positive cross price elasticity...

To determine

(b)

To find the weather the cross elasticity of demand is large or small.

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