Suppose that when the price of good X changes from $5 to $10,the demand for good Y changes from 110 to 100,then the cross-elasticity of demand is:
A) -0.09 and the goods are complements.
B) 1.44 and the goods are complements.
C) 1.44 and the goods are substitutes.
D) -0.143 and the goods are complements.
The percent change in quantity of Y is (100 - 110)/(100 + 110)= -0.0476 and the percent change in the price of X is (10 - 5)/(10 + 5)= 0.333.Thus the cross-price-elasticity is-0.0476/0.333 = -0.143.

Question

Quizplus · Accepted Answer

Using the formula for cross-elasticity of demand, we can calculate that the value is -0.143. A negative value indicates that the goods are complements, meaning that an increase in the price of good X leads to a decrease in the demand for good Y. Therefore, the best choice is (D) -0.143 and the goods are complements.

Suppose That When the Price of Good X Changes from $5