Microsoft raises the price of its Office software by 10 percent. As a result, the quantity of personal computers demanded at the current price decreases by 5 percent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?
A) -2.0
B) -0.5
C) 0.5
D) 2.0

Question

Quizplus · Accepted Answer

The cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is -5% / 10% = -0.5.

Microsoft Raises the Price of Its Office Software by 10