When the price of tacos went from $2 to $3 dollars each, the quantity demanded of burritos changed from 100 to 120 a day. The cross-price elasticity of demand for burritos calculated using the initial value method is
A) 1.33.
B) 0.75.
C) 0.4.
D) -0.75.

Question

Quizplus · Accepted Answer

According to the initial value method, the formula for cross-price elasticity of demand (Exy) is:
Exy = (%ΔQy / %ΔPx) = [(Q2y - Q1y) / Q1y] / [(P2x - P1x) / P1x]

Using the given values:
Q1y = 100
Q2y = 120
P1x = $2
P2x = $3

Exy = [(120-100)/100] / [(3-2)/2]
Exy = 0.4

Therefore, the answer is C.

When the Price of Tacos Went from $2 to $3