The cross-price elasticity of demand for textbooks and copies of old exams is −3.5.If the price of copies of old exams increases by 10 percent,the quantity demanded of textbooks will:
A) fall by 3.5 percent.
B) rise by 3.5 percent.
C) fall by 35 percent.
D) rise by 35 percent.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is negative, indicating an inverse relationship between the demand for textbooks and the price of copies of old exams. The magnitude of -3.5 suggests that for every 1% increase in the price of copies of old exams, the quantity demanded of textbooks will fall by 3.5%. Therefore, a 10% increase in the price of copies of old exams will lead to a 35% decrease in the quantity demanded of textbooks, as per the formula: % change in quantity demanded of textbooks = (cross-price elasticity) x (% change in price of copies of old exams) = (-3.5) x (10) = -35.

The Cross-Price Elasticity of Demand for Textbooks and Copies of Old