The cross price elasticity of demand measures how the quantity demanded for one good changes in response to a change in the price of another good. In this case, the cross price elasticity of demand would measure how the quantity of tablet devices demanded changes in response to a change in the price of digital apps.
To calculate the cross price elasticity of demand, we need to know the percentage change in the quantity demanded of tablet devices and the percentage change in the price of digital apps.
Given that a 5 percent increase in the price of digital apps reduces the quantity of tablet devices demanded by 9 percent, we can use the following formula to calculate the cross price elasticity of demand:
Cross Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price of Related Good)
Cross Price Elasticity of Demand = -9% / 5% = -1.8
The cross price elasticity of demand is -1.8, indicating that the quantity of tablet devices demanded is relatively elastic or responsive to changes in the price of digital apps. A negative value indicates that tablet devices and digital apps are substitute goods, meaning that as the price of digital apps increases, consumers are likely to switch to purchasing more tablet devices.
Upper A
5
percent increase in the price of digital apps reduces the amount of tablet devices demanded by 9
percent.
The cross price elasticity of demand is---.
1 answer
1 answer