The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?
A) Reduce by 0.71%.
B) Increase by 3.55%.
C) Increase by 5%.
D) None of the above.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand indicates how the quantity demanded of one good responds to a change in the price of another good. A negative elasticity of -0.71 suggests that as the price of gasoline increases, the demand for gasoline-powered cars decreases. However, the options provided do not correctly calculate the impact based on the given elasticity and price change, hence none of the options accurately describe the effect on demand.

The Cross-Price Elasticity of the Demand for Gasoline-Powered Cars with Respect