If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10,and gasoline prices rise by 18 percent,then SUV sales should,ceteris paribus,
A)Fall by 1.8 percent.
B)Fall by 18 percent.
C)Rise by 1.8 percent.

Question

Quizplus · Accepted Answer

The negative cross-price elasticity of demand between SUVs and gasoline means that they are complementary goods, where an increase in gasoline prices will decrease the demand for SUVs. With a 18% increase in gasoline prices, the predicted change in sales of SUVs would be a 1.8% decrease (0.10 x 18 = 1.8). Therefore, option A is correct.

If the Cross-Price Elasticity of Demand for SUVs with Respect