Use the information below to answer the question that follows.
When commodity X sold for N25 per unit, 50 units of commodity Y were purchased. With an increase in the price of commodity X to N50 per unit, the demand for commodity Y fell to 20 units.
Determined the cross elasticity of demand?
- 1.7
- 0.6
-
-0.6
- -1.7
The correct answer is: C
Explanation
Cross elasticity of demand shows the way that the changes in the price of one good can affect the quantity demanded of another good.
CED = \(\frac{\text { % change in demand of product Y} }{\text { % change of price of product X}}\)
% ∆ demand of y = 50 - \(\frac{25}{25}\) × 100
= \(\frac{25}{25}\) × 100 = 100
% ∆ price of x = 20 - \(\frac{50}{50}\) × 100
= - \(\frac{30}{50}\) × 100 = - 60
CED = \(\frac{\text {% ∆ demand of y}}{\text {%∆ price of x}}\)
= - \(\frac{-60}{100}\)
= - 0.6