If the price of jelly goes up by 10 percent,we observe a decrease in the quantity demanded of peanut butter of 20 percent.The cross-price elasticity of these goods is:
A)0.5.
B)2.
C)-0.5.
D)-2.

Question

Quizplus · Accepted Answer

Cross-price elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. In this case, the percentage change in the price of jelly is 10%, and the percentage change in the quantity demanded of peanut butter is -20%. So, the cross-price elasticity of demand = (-20%/10%) = -2. Therefore, the correct answer is D, which is -2.

If the Price of Jelly Goes Up by 10 Percent,we