Use the figure below to calculate the cross-price elasticity of demand for good X when the price of good Y increases from $12 to $14:
A)0.64
B)0.42
C)0.20
D)2.00
E)15.38

Question

Use the figure below to calculate the cross-price elasticity of demand for good X when the price of good Y increases from $12 to $14:
A)0.64 
B)0.42 
C)0.20 
D)2.00 
E)15.38

Quizplus · Accepted Answer

Cross-price elasticity of demand = % change in quantity demanded of Good X / % change in price of Good Y
From the figure, when the price of Good Y increased from $12 to $14, the quantity demanded of Good X decreased from 70 units to 60 units, a decrease of (10/70) x 100% = 14.29%
Therefore, the % change in quantity demanded of Good X = -14.29%
The % change in price of Good Y = (14-12)/12 x 100% = 16.67%
Therefore, the cross-price elasticity of demand = (-14.29/16.67) = -0.857
However, since the question asks for the absolute value of cross-price elasticity, the answer is 0.857 which is closest to option B) 0.42.

Use the Figure Below to Calculate the Cross-Price Elasticity of Demand