Answered

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The quantity demanded of cereal increased from 1,350 to 1,700 when the price of milk decreased from $2.05 to $1.65. What is the estimated cross-price elasticity of demand for cereal

Sagot :

Answer:

-1.33

Explanation:

Cross price elasticity of demand measures the responsiveness of quantity demanded of good A to changes in price of good B.

If cross price elasticity of demand is positive, it means that the goods are -substitute goods.

Substitute goods are goods that can be used in place of another good.

If the cross-price elasticity is negative, it means that the goods are complementary goods.

Complementary goods are goods that are consumed together

Cross Price elasticity of demand = percentage change in quantity demanded of good A / percentage change in price of good B

percentage change in quantity demanded of good = (1700/ 1350) - 1 = 0.259

percentage change in price = (1.65 / 2.05) - 1 = -0.195

0.259 / -0.195 = -1.33

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