When the price of hamburger went from $3 to $4 a pound, the quantity demanded of buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for buns (using the initial value formula) is
A) 1.4.
B) 0.5.
C) -0.5.
D) -1.4.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in quantity demanded of buns divided by the percentage change in price of hamburgers. The percentage change in quantity demanded of buns is ((25-30)/30) = -0.1667, and the percentage change in price of hamburgers is ((4-3)/3) = 0.3333. The cross-price elasticity is -0.1667 / 0.3333 = -0.5.

When the Price of Hamburger Went from $3 to $4