The cross-price elasticity of demand for books and magazines is −2.0.If the price of magazines decreases by 10 percent,the quantity demanded of books will:
A) fall by 2.0 percent.
B) rise by 2.0 percent.
C) fall by 20 percent.
D) rise by 20 percent.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is negative, meaning books and magazines are substitute goods. When the price of magazines decreases by 10 percent, the demand for magazines will increase while the demand for books will decrease. The magnitude of the cross-price elasticity of demand implies that a 10 percent decrease in the price of magazines will lead to a 20 percent increase in the quantity demanded of books (-2.0 x 10 percent = -20 percent). Therefore, the quantity demanded of books will rise by 20 percent.

The Cross-Price Elasticity of Demand for Books and Magazines Is