Suppose that a 5% increase in the price of gasoline leads to a 15% decrease in the quantity of SUVs demanded.The cross-price elasticity of demand for SUVs is
A) 0.33.
B) 3.0.
C) 3.3.
D) 33.0.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is -15% / 5% = -3.0. However, since elasticity is typically expressed as an absolute value, the answer is 3.0.

Suppose That a 5% Increase in the Price of Gasoline