When the price of a pizza is $10,the quantity of soda demanded is 300 drinks.When the price of a pizza is $15,the quantity soda demanded is 100 drinks.The cross elasticity of demand is equal to
A) -0.25.
B) -0.40.
C) -2.50.
D) -25.00.
E) 4.00.

Question

Quizplus · Accepted Answer

The formula for calculating cross elasticity of demand is:
Cross elasticity of demand = % change in quantity demanded of soda / % change in price of pizza

Using the given data, we can calculate the % change in quantity demanded of soda:
% change in quantity demanded = [(new quantity - old quantity) / old quantity] x 100

When the price of pizza changes from $10 to $15, the % change in quantity demanded of soda is:
[(100 - 300) / 300] x 100 = -66.67%

Similarly, the % change in price of pizza is:
[(15 - 10) / 10] x 100 = 50%

Now we can use these values to calculate the cross elasticity of demand:
Cross elasticity of demand = -66.67% / 50% = -2.50

Therefore, the cross elasticity of demand is -2.50. Option C is the correct answer.

When the Price of a Pizza Is $10,the Quantity of Soda