8. Substitutes, complements, or unrelated? Aa Aa Data collected in the imaginary

Question

8. Substitutes, complements, or unrelated? Aa Aa Data collected in the imaginary economy of Chipolaysia reveals that when the price of dro, decreased by 20%, the quantity of drof sold increased by 30%, and the quantity of pen demanded increased by 15%. What is the cross-price elasticity of demand between perf and drof? O 0.5 O 1.33 O-0.75 Which of the following can you conclude based on this information? Check all that apply. The demand for perf is price elastic in this price range. The demand for drof is price inelastic in this price range. Drof and perf are unrelated. Drof and perf are complements.

Explanation / Answer

Answer
Cross price elasticity of demand=%change in quantity of y/%change in the price of x
Cross price elasticity between perf and drof=15/(-20)
=-0.75
Option fourth
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Price elasticity=%change in quantity/%change in price
price elasticity of demand for Drof =30/(-20)
=-1.5
The demand is elastic for Drof
and the cross-price elasticity is negative so Drof and perf are complements

Option 4 is correct.

as the price is elastic for Drof, they are complements

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