Suppose that when the price of good X increases from $600 to $720, the quantity demanded of good Y decreases from 67 to 15. Using the midpoint method, the cross-price elasticity of demand is about
A)6.98, and X and Y are substitutes.
B)-0.14, and X and Y are complements.
C)0.14, and X and Y are substitutes.
D)-6.98, and X and Y are complements.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated using the midpoint method as [(15 - 67) / ((15 + 67) / 2)] / [(720 - 600) / ((720 + 600) / 2)] = -6.98. A negative cross-price elasticity indicates that goods X and Y are complements.

Suppose That When the Price of Good X Increases from $600