Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
% Change in Quantity Demanded of Good A / % Change in Price of Good A
B
% Change in Quantity Demanded of Good A / % Change in Price of Good B
C
% Change in Price of Good A / % Change in Quantity Demanded of Good B
D
% Change in Quantity Supplied of Good A / % Change in Quantity Demanded of Good B
Understanding the Answer
Let's break down why this is correct
Answer
Cross price elasticity of demand measures how the quantity demanded for one good changes when the price of another good changes. The formula to calculate it is: the percentage change in the quantity demanded of Good A divided by the percentage change in the price of Good B. This means you look at how much more or less of Good A people want when Good B's price goes up or down. For example, if the price of coffee increases by 10% and as a result, the quantity demanded for tea increases by 5%, you would calculate the cross price elasticity as 5% divided by 10%, which equals 0. 5.
Detailed Explanation
This formula shows how the demand for one good changes when the price of another good changes. Other options are incorrect because This option mixes up the goods; This option incorrectly uses price changes instead of demand changes.
Key Concepts
calculation formula
Topic
Cross Price Elasticity of Demand
Difficulty
easy level question
Cognitive Level
understand
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