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4 January, 16:45

Suppose the cross-price elasticity of demand between goods X and Y is 4. How much would the price of good Y have to change in order to increase the consumption of good X by 20 percent?

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  1. 4 January, 16:46
    0
    Increase by 5%.

    Explanation:

    Given that,

    cross-price elasticity of demand between goods X and Y = 4

    Percentage increase in consumption of good X = 20 %

    cross-price elasticity of demand = Percentage change in quantity demanded for good X : Percentage change in price of good Y

    4 = 20 : Percentage change in price of good Y

    Percentage change in price of good Y = 20 : 4

    = 5%

    Therefore, the price of good Y must be increase by 5% in order to increase the consumption of good X by 20 percent.
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