Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded.The value of the cross-price elasticity of demand is
A) -1.71
B) -0.58.
C) 1.71.
D) 0.58.

Question

Quizplus · Accepted Answer

To find the cross-price elasticity of demand, we need to know the percentage change in the quantity demanded of shin guards in response to a change in the price of soccer shoes.

The price of soccer shoes decreases by 7%, which means the new price is 93% of the original price (100%-7%=93%).

If the quantity of shin guards demanded increases by 12%, then we can use the formula for cross-price elasticity of demand:

E = (% change in quantity demanded of shin guards) / (% change in price of soccer shoes)
E = 12% / (-7%) 
E = -1.71

The negative sign indicates that soccer shoes and shin guards are complementary goods. As the price of soccer shoes decreases, the demand for shin guards increases. Since the value of the cross-price elasticity of demand is greater than 1, we know that these two goods are highly complementary.

Suppose the Price of Soccer Shoes Decreases by 7 Percent