The cross-price elasticity of demand for peanut butter with respect to the price of jelly is -0.3. If we expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut butter?
A) +15%
B) +45%
C) +4.5%
D) -4.5%

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand formula is % change in quantity demanded of good X / % change in price of good Y. Given a -0.3 elasticity and a -15% change in price of jelly, the expected change in quantity demanded for peanut butter is -0.3 * (-15%) = +4.5%.

The Cross-Price Elasticity of Demand for Peanut Butter with Respect