If the price of a cinema ticket rises 3 per cent and, as a result, the quantity demanded of DVD rentals increases 6 per cent, then the cross elasticity of demand is
A) 2.
B) 9.
C) 1/2.
D) -2.
E) -1/2.

Question

Quizplus · Accepted Answer

The cross 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 (6% / 3%) = 2. This indicates that the two goods are substitutes, as the demand for one increases when the price of the other increases.

If the Price of a Cinema Ticket Rises 3 Per