Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup increases by 10 percent, and the cross elasticity of demand is -2, the quantity of ice cream demanded
A)increases by 5 percent.
B)increases by 20 percent.
C)decreases by 5 percent.
D)decreases by 20 percent.
E)decreases by 2 percent.

Question

Quizplus · Accepted Answer

A cross elasticity of -2 means that for every 1 percent increase in the price of syrup, the quantity of ice cream demanded decreases by 2 percent. Therefore, a 10 percent increase in the price of syrup would lead to a 20 percent decrease in the quantity of ice cream demanded (10% x -2).

Suppose Clyde Always Eats Ice Cream and Chocolate Syrup Together