Suppose that the quantity of cars sold decreases by 5 per cent after the price of motorbikes decreases by 20 per cent.What is the coefficient of the cross elasticity of demand?
A)3.
B)1.5.
C)0.25.
D)2.
E)0.3.

Question

Quizplus · Accepted Answer

The coefficient of cross elasticity of demand is calculated as the percentage change in the quantity of one good divided by the percentage change in the price of another good. In this case, the quantity of cars sold decreases by 5% after the price of motorbikes decreases by 20%. Therefore, the coefficient of cross elasticity of demand is -5%/(-20%) = 0.25.

Suppose That the Quantity of Cars Sold Decreases by 5