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) 0.25
B) -0.25
C) -0.4
D) 2000

Question

Quizplus · Accepted Answer

The formula for cross-price elasticity of demand is:
cross-price elasticity = percentage change in quantity demanded of hot dog buns / percentage change in price of hot dogs
Using the information given in the problem, we can calculate the percentage change in quantity demanded of hot dog buns:
((8,000 - 10,000) / 10,000) * 100% = -20%
And the percentage change in price of hot dogs:
((3 - 2) / 2) * 100% = 50%
Now we can plug these values into the formula:
cross-price elasticity = (-20% / 50%) = -0.4
Therefore, the cross-price elasticity of demand for hot dogs and hot dog buns is -0.4.

Suppose That When the Price of Hot Dogs Is $2