Question

7. A 10 percent decrease in the price of a Pepsi decreases the demand for a

Coca-Cola by 50 percent. Find out the cross elasticity of demand between

Pepsi and Coca-Cola.

Answer 1

By the definition of the cross elasticity of demand, we have:

$$E_{xy}=\dfrac{\%\Delta Q_x}{\%\Delta P_y}=\dfrac{-50\%}{-10\%}=5.0$$