When the price of one pen is $1,the number of notebooks demanded is 50.When the price per pen increases to $5,the number of notebooks demanded decreases to 30.What is the cross-price elasticity of demand between the two goods using the arc elasticity method?
A) 0.1
B) −0.375
C) 3
D) −3

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated using the formula: (Q2 - Q1) / [(Q2 + Q1)/2] / (P2 - P1) / [(P2 + P1)/2], where Q1 and Q2 are the initial and final quantities demanded of notebooks, and P1 and P2 are the initial and final prices of pens. Substituting the given values: (30 - 50) / [(30 + 50)/2] / (5 - 1) / [(5 + 1)/2] = -20 / 40 / 4 / 3 = -0.375.

When the Price of One Pen Is $1,the Number of Notebooks