Because of poor snowfall, a ski village reduces the prices of chalet rentals by 20%, and this subsequently increases the sale of ski lift tickets by 15%. The cross elasticity of demand is _____ and chalet rentals and lift tickets are _____.
A) 1.33; substitutes
B) -1.33; complements
C) 0.75; substitutes
D) -0.75; complements

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 15% / -20% = -0.75. A negative cross elasticity indicates that the goods are complements.

Because of Poor Snowfall, a Ski Village Reduces the Prices