Suppose that when the price of good X falls from $6 to $4,the quantity demanded of good Y rises from 30 units to 40 units.Using the midpoint method,the cross-price elasticity of demand is
A)-0.71,and X and Y are complements.
B)-1.40,and X and Y are complements.
C)-0.71,and X and Y are substitutes.
D)-1.40,and X and Y are substitutes.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated using the midpoint method as [(40-30)/((40+30)/2)] / [(4-6)/((4+6)/2)] = 0.71. Since the elasticity is negative, X and Y are complements.

Suppose That When the Price of Good X Falls from $6