Suppose that the quantity of apples sold increases by 30 percent after the price of pears increases by 15 percent. What is the coefficient of cross elasticity of demand?
A) 3.0.
B) 1.5.
C) 0.2.
D) 2.0.
E) 0.3.

Question

Quizplus · Accepted Answer

The coefficient of cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good.

In this case, the cross elasticity of demand for apples with respect to the price of pears can be calculated as:

% Change in Quantity Demanded of Apples / % Change in Price of Pears

The % change in quantity demanded of apples is given as 30% increase.

The % change in the price of pears is given as 15% increase.

Therefore, the cross elasticity of demand for apples with respect to the price of pears is:

(30% / 15%) = 2.0

Thus, the coefficient of cross elasticity of demand is 2.0.

Suppose That the Quantity of Apples Sold Increases by 30