The cross-price elasticity of demand measures the percentage change in the quantity of a good demanded when the price of a different good changes by 1 %. The income elasticity of demand measures the percentage change in the quantity of a good demanded when the income of buyers changes by 1 %. a. What sign might you expect the cross-price elasticity to have if the two goods are shampoo and conditioner? Why?

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Business

Landyn Kline

3 May, 07:17

The cross-price elasticity of demand measures the percentage change in the quantity of a good demanded when the price of a different good changes by 1 %. The income elasticity of demand measures the percentage change in the quantity of a good demanded when the income of buyers changes by 1 %. a. What sign might you expect the cross-price elasticity to have if the two goods are shampoo and conditioner? Why?

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Guadalupe Mendoza · Answer 1

Negative sign

Explanation:

As the problem states, the cross-price elasticity measures how the quantity demanded of good A changes when the price of good B changes by 1%.

It is common that people use shampoo and conditioner, but not only conditioner (maybe only shampoo, but for this example let's suppose that most of the time, people do not use only one). We can affirm that they are complementary goods. The cross-price elasticity of shampoo and conditioner should be negative because if the price of one increases (for example conditioner), the quantity demanded for the other, (shampoo), will decrease.