The percentage change in the quantity demanded of good X is 20 percent and the percentage change in the price of good Y is 10 percent. It follows that the __________ elasticity of demand is __________ and that the two goods are __________.
A)income; 0.50; substitutes
B)cross; 2.00; complements
C)cross; 0.50; substitutes
D)cross; 2.00; substitutes
E)price; 2.00; substitutes

Question

Quizplus · Accepted Answer

The correct answer is cross elasticity of demand, which is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. Here, it is 20% / 10% = 2.00. A positive cross elasticity indicates that the goods are substitutes.

The Percentage Change in the Quantity Demanded of Good X