Answer in Microeconomics for Jzen #110814
The cross-price elasticity of demand is computed as:“%Change in the quantity demanded of X/%Change in the price of Y” “%Change in the quantity demanded of X/%Change in the price of Y”
“E_{xy}=dfrac{text{% Change in the quantity demanded of X}}{text{% Change in the price of Y}}”
Let Wakami be good X and bento box be good Y.
If the demand for Wakami increases from 700 to 800 units as a result of increase in the price of bento box from $3 to $5, then:
“text{% Change in the quantity demanded of X}= dfrac{800 – 700}{700}times 100napprox 14.29%”
“text{% Change in the price of Y}= dfrac{$5- $3}{3}times 100napprox 66.67%”
Therefore:
“E_{xy}=dfrac{14.29%}{66.67%}approx 0.214”
The two goods are substitutes since their cross-price elasticity of demand is positive.
