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 Demanded of Good B / % Change in Price of Good A
Understanding the Answer
Let's break down why this is correct
Answer
Cross price elasticity of demand measures how the quantity demanded of one good changes when the price of another good changes. The formula for calculating it is the percentage change in the quantity demanded of Good A divided by the percentage change in the price of Good B. If the result is positive, it means the two goods are substitutes; for example, if the price of tea goes up and people buy more coffee, they are substitutes. If the result is negative, it indicates that the goods are complements; for instance, if the price of printers decreases and more ink is bought, they are complements. Understanding this helps businesses and economists see how changes in pricing can affect sales of related products.
Detailed Explanation
This formula shows how the quantity demanded of one good changes when the price of another good changes. Other options are incorrect because This option mixes up the goods; This option is incorrect because it looks at the price of Good A affecting the demand for Good B.
Key Concepts
cross price elasticity definition
calculation formula
Topic
Cross Price Elasticity of Demand
Difficulty
medium level question
Cognitive Level
understand
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