If price of product A increases by 10%,and the quantity demanded for product B drops by 50%,then the cross price elasticity of the quantity of product A with respect to price of product B is
A)5.
B)-5.
C)0.2.
D)-0.2.

Question

Quizplus · Accepted Answer

The formula for cross price elasticity of demand is:
(% change in quantity demanded of product A) / (% change in price of product B)

From the given information, we know that:
- The price of product A increased by 10%, which means the price of product B did not change.
- The quantity demanded for product B dropped by 50%, which means the % change in quantity demanded of product B is -50%.

To find the % change in quantity demanded of product A, we need to know its original and new quantity demanded, which is not given in the question. Therefore, we cannot calculate the actual value of cross-price elasticity, but we can determine its sign based on the relationship between the two products.

Product A and B are substitute goods because an increase in the price of product A leads to a decrease in the quantity demanded of product B. Substitutes have a negative cross price elasticity of demand. Therefore, the answer must be a negative value, which is only given by choice B.

If Price of Product a Increases by 10%,and the Quantity