Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00.This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to
A)fall by 200 percent.
B)fall by 40 percent.
C)rise by 200 percent.
D)rise by 40 percent.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand between two goods measures the responsiveness of the quantity demanded of one good to a change in the price of the other good. A negative cross-price elasticity of demand indicates that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the quantity demanded of the other good. In this case, a 20% increase in the price of hot dogs will lead to a 40% decrease in the quantity of mustard purchased, because the cross-price elasticity of demand between hot dogs and mustard is -2.00. Therefore, the correct answer is B.

Suppose the Cross-Price Elasticity of Demand Between Hot Dogs and Mustard