If a good C increases in price by 30% a pound, and this cause the quantity demanded for a good D to increase by 40%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place

Economics Dec 18, 2020

If a good C increases in price by 30% a pound, and this cause the quantity demanded for a good D to increase by 40%, what is the cross-price elasticity of the two goods?

Round your answer to one decimal place.

What is the relationship between the two goods?

a) Compliments

b) Substitutes

c) No relationship

Expert Solution

Cross Price Elasticity of Demand (XED) = percentage change in quantity demanded of good D / percentage change in the price of good C

XED = 40% / 30% = 1.3333

XED = +1.3

Since the Cross-Price Elasticity of Demand (XED) is positive, Good C and Good D are substitutes.

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