If the cross elasticity of demand between beef and bison is 1.5,then a 3 percent increase in the price of beef will lead to a ________ in the quantity of bison demanded.
A)4.5 percent increase
B)4.5 percent decrease
C)2 percent increase
D)2 percent decrease
E)0.5 percent increase

Question

Quizplus · Accepted Answer

The cross elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. A positive cross elasticity indicates that the two goods are substitutes. Here, a 1.5 cross elasticity means that for every 1% increase in the price of beef, the quantity of bison demanded increases by 1.5%. Therefore, a 3% increase in the price of beef leads to a 4.5% increase in the quantity of bison demanded (1.5 * 3 = 4.5).

If the Cross Elasticity of Demand Between Beef and Bison