Suppose that when the price of hot dogs is $2 per package,there is a demand for 10,000 bags of hot dog buns.When the price of hot dogs is $3 per package,the demand for hot dog buns falls to 8,000 bags.What is the cross-price elasticity of demand for hot dogs and hot dog buns?
A) -0.4
B) -0.25
C) 4
D) 0.25

Question

Quizplus · Accepted Answer

The cross-price 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, the percentage change in quantity demanded of hot dog buns is -20% (from 10,000 to 8,000), and the percentage change in price of hot dogs is 50% (from $2 to $3). Thus, the cross-price elasticity is -20% / 50% = -0.4.

Suppose That When the Price of Hot Dogs Is $2