Asked by Bailey Goodman on Jul 30, 2024
Verified
If the quantity of pretzels demanded decreases by 8% when the price of beer increases by 6%, the cross-price elasticity of demand between pretzels and beer is
A) -14.
B) -1.33.
C) -0.75.
D) 2.
Cross-price Elasticity
Cross-price Elasticity measures the responsiveness of the demand for one good to a change in the price of another good.
- Gain insight into the notion of cross-price elasticity of demand and its role in establishing the linkage between items.
Verified Answer
AS
Agung SeptaAug 02, 2024
Final Answer :
B
Explanation :
The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. Here, it is (-8% / 6%) = -1.33, indicating that pretzels and beer are complements since the cross-price elasticity is negative.
Learning Objectives
- Gain insight into the notion of cross-price elasticity of demand and its role in establishing the linkage between items.
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