Suppose the cross-price elasticity of demand between Taco Bell tacos and Carnitas Lonja (in San Antonio, Texas) tacos is 0.8. If Carnitas Lonja increases the price of its tacos by 10%:
A)Taco Bell will sell 10% more tacos.
B)Taco Bell will sell 8% more tacos.
C)Taco Bell will sell 8% fewer tacos.
D)We cannot tell what will happen to Taco Bell, but Carnitas Lonja will sell 8% fewer tacos.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand of 0.8 means that for every 1% increase in the price of Carnitas Lonja tacos, the quantity demanded of Taco Bell tacos increases by 0.8%. Therefore, a 10% price increase in Carnitas Lonja tacos leads to an 8% increase in the quantity demanded of Taco Bell tacos.

Suppose the Cross-Price Elasticity of Demand Between Taco Bell Tacos