Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%.For Raina,pencils and pens are _____,and the cross-price elasticity of demand is _____.
A)complements;0.5
B)substitutes;-0.5
C)complements;2
D)substitutes;2

Question

Quizplus · Accepted Answer

Pencils and pens are substitutes because an increase in the price of pens leads to an increase in the consumption of pencils. The cross-price elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of the other good, which is 100%/50% = 2.

Raina Consumes 100% More Mechanical Pencils When the Price of Felt-Tip