If the price of jelly goes up by 10 percent, we observe a decrease in the quantity demanded of peanut butter of 20 percent. the cross-price elasticity of these goods is:

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Business

Elsie

20 September, 14:53

If the price of jelly goes up by 10 percent, we observe a decrease in the quantity demanded of peanut butter of 20 percent. the cross-price elasticity of these goods is:

+2

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Horne · Answer 1

Cross price elasticity refers to the measure of responsiveness of the quantity demanded of a product to a change in price of another good.

From the question given above,

cross price elasticity = - 20% / 10% = - 2.

The cross price elasticity for the goods above is - 2. Which means that the goods are not substitutes.

A positive cross price elasticity which is greater than zero means that the goods are substitutes.