Suppose the price of Cheerios rises by 25%, and the quantity of milk sold decreases by 50%. We know that the:
A)cross-price elasticity of demand between Cheerios and milk is -2.
B)cross-price elasticity of demand between Cheerios and milk is -0.5.
C)price elasticity of demand for milk is 2.
D)cross-price elasticity of demand between Cheerios and milk is 2.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is -50% / 25% = -2, indicating that Cheerios and milk are complements.

Suppose the Price of Cheerios Rises by 25%, and the Quantity