Suppose that the cross-price elasticity between two goods is 1.5.If the price of one good increases by 10%,then the quantity demanded of the other good will:
A) decrease by 15%.
B) increase by 15%.
C) decrease by 1.5%.
D) increase by 1.5%.

Question

Quizplus · Accepted Answer

The cross-price elasticity of 1.5 indicates that the two goods are substitutes (since the elasticity is positive). A 10% increase in the price of one good will cause the quantity demanded of the other good to increase by 1.5 times that amount, or 15%. Therefore, the correct answer is B, increase by 15%.

Suppose That the Cross-Price Elasticity Between Two Goods Is 1