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Chapter 5: Q.9 (page 130)

Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3%. What will happen to the demand for apples?

Short Answer

Expert verified

The demand for apples will decrease.

Step by step solution

01

Step 1. Introduction:

The percentage fluctuation in the quantity demanded of a commodity divided by the percentage variation in the price of other commodity is the cross-price elasticity of demand.

02

Step 2. Solution:

The formula used to compute the cross-price elasticity of apples is given below:

Cross-priceelasticityofapples=%changeindemandforapples%changeinpriceoforanges

The cross price elasticity of apples is 0.4 and change in price of oranges is -3% (as the price has decreased). Substituting the values, we get:

0.4=%changeindemandforapples-3%

%changeindemandforapples=0.4×-3%=-1.2%

Thus, the demand for apple changes by -1.2%

03

Step 3. Conclusion:

As the % change in demand for apples is a negative number, it means the demand for apples will decrease by 1.2%.

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Most popular questions from this chapter

If demand is inelastic, will shifts in supply have a larger effect on equilibrium price or on quantity?

The price of a good rises from \(16 to \)24, and the quantity supplied rises from 90 to 110 units. Calculated with the midpoint method, the price elasticity of supply is

a. 1/5.

b. 1/2.

c. 2.

d. 5.

If demand is elastic, will shifts in supply have a larger effect on equilibrium quantity or on price?

If the price elasticity of supply is zero, the supply curve is

a. upward sloping.

b. horizontal.

c. vertical.

d. fairly flat at low quantities but steeper at large quantities.

32. Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?
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