-Refer to the above table. The price of B decreases from $18 to $15. What is the cross price elasticity of demand between B and A?
A) -0.73
B) -1.0
C) +1.38
D) +1.83

Question

-Refer to the above table. The price of B decreases from $18 to $15. What is the cross price elasticity of demand between B and A?
A) -0.73 
B) -1.0 
C) +1.38 
D) +1.83

Quizplus · Accepted Answer

The cross price elasticity of demand formula is (% change in quantity demanded of Good A) / (% change in price of Good B). If the quantity demanded of A increases from 100 to 138 (a 38% increase) when the price of B decreases from $18 to $15 (a 16.67% decrease), the cross price elasticity is +1.38 (38% / 16.67%). This indicates that A and B are substitutes, as the demand for A increases when the price of B decreases.

-Refer to the Above Table