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Chapter 5: Q.22 (page 130)

What is the formula for the cross-price elasticity of demand?

Short Answer

Expert verified

Cross-priceelasticityofdemand=(dQ/dP')*(P'/Q)

Step by step solution

01

Definition

Cross Elasticity of Demand :

The cross elasticity of demand is a factor in the economy that assesses when responsive a quantity desired of one product is to price changes in another.

02

Explanation

The following is the formula: CROSS PRICE ELASTICITY OF DEMAND = %changeinquantitysoughtforProductA%changeinpriceforProductB As a result, we can use the following formula:

Cross-priceelasticityofdemand=(dQ/dP')*(P'/Q)

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Most popular questions from this chapter

The supply of paintings by Leonardo Da Vinci, who painted the Mona Lisa and The Last Supper and died in 1519, is highly inelastic. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that demand for these paintings will determine the price.

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Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company鈥檚 product at the current price is 1.4, would you advise the company to raise the price, lower the price, or keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

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