Suppose that the price of product A decreases from $27 to $14 and, as a result,

Question

Suppose that the price of product A decreases from $27 to $14 and, as a result, the quantity traded of A increases from 175 to 210, the quantity traded of B increases from 65 to 100 and the quantity traded of product C falls from 505 to 400.
1) What is the absolute value of the price elasticity of demand of product A?
2) What is the cross-price elasticity of demand for good B with respect to the price of good A?
3) What is the cross-price elasticity of demand for good C with respect to the price of good A? Suppose that the price of product A decreases from $27 to $14 and, as a result, the quantity traded of A increases from 175 to 210, the quantity traded of B increases from 65 to 100 and the quantity traded of product C falls from 505 to 400.
1) What is the absolute value of the price elasticity of demand of product A?
2) What is the cross-price elasticity of demand for good B with respect to the price of good A?
3) What is the cross-price elasticity of demand for good C with respect to the price of good A?
1) What is the absolute value of the price elasticity of demand of product A?
2) What is the cross-price elasticity of demand for good B with respect to the price of good A?
3) What is the cross-price elasticity of demand for good C with respect to the price of good A?

Explanation / Answer

1> Change in Price $13 (Decreases). Quantity increases 35 unit. So Price eleasticity of demand of product A is

(35/13)X(27/175)=0.415 (In absolute value)

2> the cross price eleasticity of demand for good B with respect to the price of good A is

(35/13)X(27/65)=1.11

3> The cross price elasticity of demand for good C with respect to the price of good A is

(95/13)X(27X505)=0.39( In absolute value)

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