If the cross price elasticity of demand for fries with respect to hamburgers equals -1.2, then:
A)a 1% increase in the quantity of hamburgers purchased will lead to a 1.2% increase in the price of fries.
B)a 10% increase in the price of a hamburger will lead to a 12% increase in the quantity of fries demanded at a given price.
C)a 1% decrease in the price of a hamburger will lead to a 1.2% increase in the quantity of fries demanded at a given price.
D)a 10% increase in the quantity of hamburgers purchased will lead to a 12% increase in the price of fries.

Question

If the cross price elasticity of demand for fries with respect to hamburgers equals -1.2, then:
A)​a 1% increase in the quantity of hamburgers purchased will lead to a 1.2% increase in the price of fries.
B)​a 10% increase in the price of a hamburger will lead to a 12% increase in the quantity of fries demanded at a given price.
C)​a 1% decrease in the price of a hamburger will lead to a 1.2% increase in the quantity of fries demanded at a given price.
D)​a 10% increase in the quantity of hamburgers purchased will lead to a 12% increase in the price of fries.

Quizplus · Accepted Answer

A cross price elasticity of demand of -1.2 suggests that fries and hamburgers are complementary goods, meaning that an increase in the price of hamburgers will decrease the demand for fries. Therefore, option C is the correct choice, as a decrease in the price of hamburgers will increase the demand for fries. Specifically, a 1% decrease in the price of hamburgers will lead to a 1.2% increase in the quantity of fries demanded. Option A is not correct because a change in the quantity of hamburgers bought is not related to the price of fries. Option B is not correct because a 10% increase in the price of hamburgers would lead to a decrease in the demand for fries, not an increase. Option D is not correct because an increase in the quantity of hamburgers purchased would again lead to a decrease in the demand for fries due to their complementary relationship.

If the Cross Price Elasticity of Demand for Fries with Respect