The price of apples at a local market rises from $2.95 to $3.05 per kilo, and as a result the quantity of oranges that households purchase increases from 3950 to 4050 kilos per week. The cross- price elasticity is
A) - 1.33.
B) - 0.75.
C) 0.75.
D) 1.33.
E) 1.5.

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, the percentage change in quantity of oranges is (4050-3950)/3950 = 0.0253, and the percentage change in price of apples is (3.05-2.95)/2.95 = 0.0339. The cross-price elasticity is 0.0253/0.0339 = 0.75.

The Price of Apples at a Local Market Rises from $2.95