📚 Learning Guide
Cross Price Elasticity of Demand
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Arrange the following steps in the correct order to analyze the relationship between two goods using cross price elasticity of demand: A) Identify the goods in question. B) Measure the change in quantity demanded of one good due to a price change of the other. C) Determine if the goods are substitutes or complements based on the elasticity result. D) Calculate the cross price elasticity of demand.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
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3
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Choose the Best Answer

A

A→B→D→C

B

A→D→B→C

C

D→A→C→B

D

B→C→A→D

Understanding the Answer

Let's break down why this is correct

Answer

To analyze the relationship between two goods using cross price elasticity of demand, you first need to identify the goods in question. After that, you would measure how the quantity demanded of one good changes when the price of the other good changes. Once you have this information, you can calculate the cross price elasticity of demand to get a numerical value. Finally, based on the result of the elasticity, you can determine if the goods are substitutes, meaning they can replace each other, or complements, meaning they are often used together. For example, if the price of coffee rises and people buy less coffee but more tea, this suggests that coffee and tea are substitutes.

Detailed Explanation

First, you need to identify the goods you are studying. Other options are incorrect because This option suggests calculating before measuring; This option starts with calculation, which is not possible without identifying the goods first.

Key Concepts

Cross Price Elasticity of Demand
Substitutes and Complements
Consumer Behavior
Topic

Cross Price Elasticity of Demand

Difficulty

medium level question

Cognitive Level

understand

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