Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound.She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound.Maddy's cross-price elasticity of demand for beans and rice is
A)0.71,and they are substitutes.
B)-0.71,and they are complements.
C)1.4,and they are substitutes.
D)-1.4,and they are complements.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. In this case, the cross-price elasticity of demand for beans and rice is calculated as:```(Q1 - Q2) / (P1 - P2) * (P2 / Q2)```where:* Q1 is the quantity of beans demanded when the price of beans is $2 per pound* Q2 is the quantity of beans demanded when the price of beans is $3 per pound* P1 is the price of beans when the quantity demanded is Q1* P2 is the price of beans when the quantity demanded is Q2Substituting the values into the formula, we get:```(2 - 1) / (2 - 3) * (3 / 1) = -0.71```Therefore, the cross-price elasticity of demand for beans and rice is -0.71, which means that beans and rice are substitutes.

Maddy Purchases 2 Pounds of Beans and 3 Pounds of Rice