Suppose the price of cereal increases by 10 percent and the amount of milk demanded decreases by 2 percent. What is the cross-price elasticity of demand between these two goods?
A) 5
B) −5
C) 0.2
D) −0.2

Question

Quizplus · Accepted Answer

The formula for cross-price elasticity of demand is (% change in quantity demanded of good Y) / (% change in price of good X).
In this case, the price of cereal (good X) increases by 10%, which leads to a 2% decrease in the quantity demanded of milk (good Y).
Therefore, the cross-price elasticity of demand between cereal and milk is:
-2% / 10% = -0.2
So, the correct answer is D, -0.2.

Suppose the Price of Cereal Increases by 10 Percent and the Amount