Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?
A) 2
B) 4
C) -0.5
D) -2

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand of Good Y with respect to the price of Good X is calculated as the percentage change in quantity demanded of Good Y divided by the percentage change in the price of Good X.

% change in quantity demanded of Good Y = -40% 
% change in price of Good X = 20%

Cross-price elasticity = (% change in quantity demanded of Good Y) / (% change in price of Good X)
= (-40% / 20%)
= -2

Therefore, the cross-price elasticity is -2.

Good X and Good Y Are Related Goods