Answer to Question #6519 in Economics of Enterprise for MATHEW
When the price of good X falls from . 10 to . 9, the demand for good Y
increase from 20 Kg. to 25 Kg.
a) What is the cross elasticity of demand of good Y for good X?
b) Are goods X and Y compliments or substitutes?
Cross elasticity: Ey,x= %change in quantity demanded of product Y/ %change in price of product X %change in quantity demanded of product Y = (25/20 -1) *100% = 25% %change in price of product X = (9/10-1)*100%= -10% Ey,x= 25%/(-10%) = -2.5 If the cross elasticity of demand is negative than goods are complements. When price on X decreases the Demand for Y increases