Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year.The value of the cross-price elasticity of demand is
A) 1.80.
B) 1.00.
C) 0.83.
D) 0.56.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of one good (scooters) divided by the percentage change in the price of another good (video games). Here, the quantity demanded of scooters falls from 40,000 to 10,000 (a 75% decrease), and the price of video games falls from $40 to $20 (a 50% decrease). The cross-price elasticity of demand = (75% / 50%) = 1.5. However, due to the lack of an option that exactly matches this calculation, and considering the potential for a calculation or interpretation error in the question or answer options, the closest provided option is A) 1.80, acknowledging a discrepancy in the calculation presented in the question.

Suppose the Price of Video Games Falls from $40 to $20