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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

The percentage variation in the quantity demanded of a commodity divided by the percentage variation in the price of another commodity is the cross-price elasticity of demand.

Step by step solution

01

Step 1. Definition:

The percentage variation in the quantity of good A required as a consequence of a percentage variation in good B is known as cross-price elasticity of demand.

02

Step 2. Formula:

A variation in the price of one commodity can shift the quantity demanded for another commodity. The formula required to compute the cross-price elasticity of demand is:

Cross-priceelasticityofdemand=%changeinquantityofgoodA%changeinpriceofgoodB

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Most popular questions from this chapter

Say that a certain stadium for professional football has 70,000 seats. What is the shape of the supply curve for tickets to football games at that stadium? Explain.

The average annual income rises from \(25,000 to \)38,000, and the quantity of bread consumed in a year by the average person falls from 30 loaves to 22 loaves. What is the income elasticity of bread consumption? Is bread a normal or an inferior good?

Describe the general appearance of a demand or a supply curve with zero elasticity.

If demand is elastic, how will an increase in price change total revenue? Explain.

An increase in the supply of grain will reduce the total revenue grain producers receive if

a. the supply curve is inelastic.

b. the supply curve is elastic.

c. the demand curve is inelastic.

d. the demand curve is elastic.
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