Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:A. negative and therefore these goods are substitutes. B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements

Question

Business

Frankie Maxwell

4 November, 18:34

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:A. negative and therefore these goods are substitutes. B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements

+4

Answers (1)

Know the Answer?

Anna White · Answer 1

C. positive and therefore these goods are substitutes.

Explanation:

Cross price elasticity is defined as a measure of the responsiveness of quantity demanded of a product to changes in price of another product. It is the percentage quantity change of a commodity when there is a percentage change in price of the other commodity.

Cross price elasticity = change in quantity of x/change in price of y

Cross price elasticity = 20/10 = 2

The cross price elasticity is positive this indicates that the goods are substitutes. Increase in demand for one results in decraese in demand of the other