Answer to Question #166464 in Macroeconomics for Anchal Mishra

Question

9. A fall in the price of X from Rs. 12 to Rs. 8 causes an increase in the

quantity of Y demanded from 900 to 1,100 units. X and Y are which type of

goods in the question.

Answer 1

Let's first find the cross elasticity of demand:

$E_{xy}=\dfrac{\%\Delta Q_x}{\%\Delta P_y}=\dfrac{\dfrac{Q_2-Q_1}{\dfrac{Q_2+Q_1}{2}}}{\dfrac{P_2-P_1}{\dfrac{P_2+P_1}{2}}}, ​ ​$ $E_{xy}=\dfrac{\dfrac{1100-900}{\dfrac{1100+900}{2}}}{\dfrac{8-12}{\dfrac{8+12}{2}}}=-0.5.$

Since $E_{xy}\lt 0$ the goods X and Y are complements (complementary goods).