Answer to Question #107566 in Microeconomics for sawaiz

Question #107566
when the price of product A decreased from $2 to $1, the consumer bought 28 units of product B instead of 20. What is the consumer's cross-price elasticity of demand for these two products? What does the calculated elasticity imply about the relationship between product A and product B for this consumer?
1
Expert's answer
2020-04-03T09:46:15-0400

We can calculate cross-price elasticity with this formula: 

E= "((Q2-Q1)\/Midpoint Q)*(Midpoint P\/(P2-P1))"

So, E = ((28-20)/24)/(1.5/(1-2))= -0.5.

From that we can say that these two products are complementary goods, as decrease of price of one leeds to increase of consumption of another.


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