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- Suppose the cross-price elasticity
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Card 9 / 10: 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?
Answer:
The formula for cross-price elasticity is % change in Qd for apples / % change in P of oranges. Multiplying both sides by % change in P of oranges yields: % change in Qd for apples = cross-price elasticity X% change in P of oranges = 0.4 × (-3%) = -1.2%, or a 1.2 % decrease in demand for apples.
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Microeconomics, OpenStax-CNX Web site. Download for free at http://cnx.org/content/col11613/latest
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