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13 November, 07:24

When the price of flowers increased from $5.00 to $5.70, the quantity demanded of chocolate increased from 5,550 to 6,150. What is the estimated cross-price elasticity of demand for chocolate? Round your answer to the nearest hundredth.

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  1. 13 November, 11:05
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    Answer:cross-price elasticity of demand = 1.57

    Explanation:

    The Cross Price Elasticity of Demand measures the degree at which the quantity demanded for one commodity changes with a change in price of another product. If the two products in comparison show a positive cross elasticity of demand, then both products are substitutes of each other, while a negative results shows both are complementary of each other.

    Cross Price Elasticity of Demand = ΔQx/Qx / ΔPy/Py

    Cross Price Elasticity of Demand = (Q1x - Q0x) / (Q1x + Q0x) : (P1y - P0y) / (P1y + P0y),

    Q0X = Initial demanded quantity of commodity X = 5500

    Q1X = Final demanded quantity of commodity X, = 6150

    P0Y = Initial price of commodity Y = $5.00

    P1Y = Final price of commodity Y = $5.70

    Cross Price Elasticity of Demand = (Q1x - Q0x) / (Q1x + Q0x) : (P1y - P0y) / (P1y + P0y)

    = (6150 - 5000) / (6150+5000) / (5.70-5.00) / (5.70 + 5.00)

    (1,150/11,150) / (0.7/10.7) = 0.103139/0.065420 = 1.5765 to the nearest hundreths = 1.57

    A positive value 0f 1.57 for cross elasticity of demand shows that there is a competitive relationship between chocolate and flowers.
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