Consider the following data for a hypothetical economy.
TABLE 4-5
-Refer to Table 4-5.The cross-price elasticity of demand for transit passes in terms of the price of gasoline is ________.We can therefore conclude that these two goods are ________.
A)0.5; substitutes
B)0.2; substitutes
C)5.0; complements
D)0.2; complements
E)0.33; substitutes

Question

Consider the following data for a hypothetical economy.
  TABLE 4-5
-Refer to Table 4-5.The cross-price elasticity of demand for transit passes in terms of the price of gasoline is ________.We can therefore conclude that these two goods are ________.
A)0.5; substitutes 
B)0.2; substitutes 
C)5.0; complements 
D)0.2; complements 
E)0.33; substitutes

Quizplus · Accepted Answer

The cross-price elasticity of demand for transit passes in terms of the price of gasoline is calculated as -0.10 / 0.50 = -0.20. Since the value is negative, we know that transit passes and gasoline are substitute goods. The correct option is B, which gives a cross-price elasticity of demand of 0.2.

Consider the Following Data for a Hypothetical Economy